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Moving the goalpost to score better

The political claptrap on passenger services in Mamata Banerjee’s maiden Railway Budget released was accentuated further in the her rail economics. HT Correspondent reports.

business Updated: Jul 04, 2009 00:34 IST

The political claptrap on passenger services in Mamata Banerjee’s maiden Railway Budget released on Friday was accentuated further in the her rail economics. Blaming the economic downturn and her predecessor’s “unrealistically high targets set in the interim budget,” Banerjee lowered the freight targets to 880 million tonnes, up 47 million tonnes, or 5.6 per cent, over the previous year’s figure.

As a result, freight earnings — which account for the bulk of profits the Railways makes and which allows the Railways to subsidise passenger fares — will stand at Rs 58,525 crore, up 10.8 per cent over the previous year (and Rs 4,232 crore more than Lalu’s target).

With Banerjee’s focus shifting to “social viability” from “economic viability”, keeping passenger fares as well as freight rates unchanged is going to see margins fall. So, while passengers are happy that fares have not been raised, industry is relieved that freight rates have been left unchanged.

But, as a result, the operating ratio —percentage of operating expenses expressed as a percentage of income —has risen to 92.5 per cent. This is almost 4 percentage points higher than what Lalu had budgeted in the interim budget.

This, however, is in tune with the broader UPA consensus. “These projects may be economically unviable but are an economic necessity for the people of those regions who have remained victims of backwardness and poverty,” Banerjee said in her speech. “These projects that are instrumental in upgradation of the deprived and under privileged, may not meet the so called economic viability criterion but create real economic assets which will be far more beneficial for future development.”

On the other side, with eight references to public-private partnership (PPP) model of financing, Banerjee is taking Lalu’s idea forward. From setting up 50 world- class stations and setting up cold storages for fruit and vegetables to new coach factory and setting up rail port connectivity and power plants, it will be the PPP model that will drive the projects.

The industry is enthusiastic. “The PPP model brings private funding, freeing up government’s capital, modern technology, and contemperory knowhow needed for accelerating railways’ key projects like the proposed new factories for manufacturing locomotives,” a GE spokesperson said.

Banerjee proposes to acquire 18,000 wagons this year, up 63 per cent from the previous year’s figure. But the share prices of the four listed wagon makers — Bharat Earth Movers Ltd, Titagarh Wagons and Texmaco — fell by 5 per cent each.