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Rail budget to signal road to reform, says minister Suresh Prabhu

All eyes will be on railway minister Suresh Prabhu on Thursday on whether he will raise passenger fare and freight rates in his maiden rail budget to boost the cash-crunched railways and include proposals for Make in India initiatives besides enhancing safety and security.

business Updated: Feb 26, 2015 13:59 IST
union rail budget 2015,Union budget 2015,Suresh Prabhu

The railway budget will signal the direction of long-term reforms needed to revamp the world's fourth-largest rail network, minister Suresh Prabhu said on Thursday. "The budget will set the direction of long and difficult road of reform," Prabhu told state-run broadcaster DD News ahead of his budget presentation.

All eyes will be on Prabhu on Thursday on whether he will raise passenger fare and freight rates in his maiden rail budget to boost the cash-crunched railways and include proposals for Make in India initiatives besides enhancing safety and security.

Minister of state for railway Manoj Sinha had earlier ruled out a reduction in fares in the context of falling diesel rates but Prabhu is expected to make a tight rope walk as he tries to bridge the huge gap in finances while presenting the budget in Lok Sabha.

Prabhu is likely to unravel his grand plans of how to decrease the cross-subsidy for passenger service from freight earnings which is touching Rs 24,000 crore and the steps to increase goods transportation share in the national transporter with or without hiking fares.

India's decrepit state-run train services stand to receive at least a 25% boost in investment to over $9 billion, funded solely by falling fuel costs, according to officials familiar with the railway budget.

The world's fourth largest rail network could get even more if Prime Minister Narendra Modi makes it a priority, as China did during its rapid economic growth over the past two decades.

There are high hopes that his nine-month-old government will plough money into investment in infrastructure needed to haul the economy out of a rut when it presents its first annual federal budget on Saturday.

The rail budget could show how far Modi's India is prepared to drive investment in a vital transport sector.

"The fall in diesel prices and a pick-up in freight earnings have given us a golden chance to raise investments," said one government official.

An increase in the budget allocation would go some way to offset disappointment at the lack of private sector interest in investing in railways, after Modi's government last year suggested public-private partnerships for new routes.

Passenger fare
Before 2012-13 there had been no increase in rail fares for 10 years, when the then railway minister and Trinamool Congress leader Dinesh Trivedi made an across-the-board hike. Trivedi was made to roll it back in second and sleeper class categories.

Since then passenger fares have been raised quite a few times. In the first railway budget of the Modi government in July last, fares were increased by 14.2% and freight by 6.5%.

As usual in India, lawmakers have made populist calls for the windfall from reduced diesel costs to be used to slash already heavily subsidised fares. But Prabhu is unlikely to pay much heed.

"There is no plan to cut passenger fares," a senior government official told Reuters.

At the same time, revenues from freight are expected to increase as the economy improves. Freight heavily subsidises passenger traffic in India, making it more expensive than road transport.

Falling fuel prices
Though there has been a fall in diesel price, electricity cost has gone up by over 4% making it a balancing act for the fuel adjustment cost (FAC)-linked tariff revision policy adopted by railways since 2013.

Falling oil prices have saved billions of dollars in subsidy spending across the economy, but finance minister Arun Jaitley is under pressure to prevent the fiscal deficit from busting a target of 3.6% of gross domestic product.

Prabhu, according to the officials, has factored in savings from cheaper diesel totalling between Rs. 120-150 billion ($1.9 billion-$2.4 billion) in the 2015/16 fiscal year, starting on April 1.

In 2014/15, Rs. 454.5 billion ($7.30 billion) was budgeted for investment in the railway - with the government providing 66% and the rest coming from internal resources.

Ways to raise funds
Currently there are 676 projects worth Rs. 1,57,883 crore sanctioned and out of these, only 317 projects could be completed and 359 projects remain to be completed which will now require as much as Rs. 1,82,000 crore.

Considered a reformer, Prabhu may lay the road map for attracting private investment for the public transporter, which badly needs funds for completion of many crucial projects.

According to sources, the budget will have detailed action plan consisting of long and short-term measures. And given the funds constraints, he is likely to go slow in announcing new trains and projects in the budget.

Funds allocation will be made only for those projects, including new lines, which are strategically crucial, doubling and route electrification which are nearing completion, PTI quoted unnamed sources as saying.

Besides seeking increased gross budgetary support of about Rs. 50,000 cr for the 2015-16 fiscal, railways have sought Rs. 20,000 cr from the finance ministry as railway safety fund to do away with unmanned level crossings, a major reason for train mishaps across the country.

He is unlikely to get that much, though one official with knowledge of the budget discussions expected a significant increase in central funding for the railways.

The railway minister is likely to spell out plans for joint venture mechanism for implementing projects involving state governments and other external agencies.

A committee led by former Banking and Financial Services secretary DK Mittal, constituted by Prabhu, has already submitted recommendations for the new fund raising and revenue models like running of trains like Haldiram Express and Coca Cola Express.

As the railway minister has stressed on improvement in passenger amenities before increasing fares, there will be a series of measures including utilisation of CSR funds to improve amenities at rail premises.

Prabhu is expected to focus on tapping more revenue channels and could announce some innovative ways for raising resources through non-tariff methods like increasing revenues from advertisements and leveraging surplus land among others.

Modi's pet projects
In line with the Swachh Bharat campaign, his budget is likely to give special attention on cleanliness exercise and a slew of measures like provision for dustbins in all coaches besides proposal to cover 100 more trains under On Board Housekeeping Services.

Bio-toilets in trains and stations will be covered under the Clean Train Station Scheme.

Keeping with the NDA government's bullet train promise, Prabhu could announce the way forward for the ambitious high-speed train project between Mumbai-Ahmedabad and survey programmes for the proposed diamond quadrilateral route.

The budget could also announce the much-awaited plan to procure 20 train sets for operating on the Rajdhani and Shatabdi routes to reduce travel time.

Prabhu is likely announce plans for manufacturing coaches to run at a 200-km per hour speed at its Chennai facility in keeping with the Modi government's Make in India initiative.

Redevelopment of about 100 stations, leveraging empty spaces for construction of marketing complex and other commercial projects are also on the cards.

Manufacturing of many locomotive components like cranks shaft, alternators and forged wheels will also be proposed to be undertaken indigenously instead of importing these parts from outside as part of the Make in India campaign.

Customer satisfaction
The customer will be a focus area in this year's rail budget as a series of steps including air-conditioning of Diesel Electric Multiple Unit (DEMU) trains for inter-city services and noise reduction in diesel locomotive cabs are likely to be proposed, the sources said.

Introduction of AC rakes in the inter-city services to make the journey more comfortable for commuters will also be proposed in this year's budget.

Prabhu, in his bid to make the railways disabled-friendly, is likely to make a proposal to provide for Braille signages in all new coaches to facilitate visually-impaired passengers.

In order to promote connectivity to the northeast region of the country, Prabhu will also announce introduction of DEMU services in northeastern states as a national project.

Since many premium trains with higher fares have been introduced to boost revenue collection, the railways will undertake an exercise for upgrading of coach interiors including redesigning user-friendly toilets.

National Institute of Design (NID) is likely to be roped for redesigning the interiors of coaches.

Use of technology, going green
Railways is likely to propose the use of radio-frequency identification tags in its upcoming budget for tracking and tracing of wagons, coaches and locomotives even as the public transporter looks to leverage information technology in a big way to improve services.

This year's budget is expected to propose extensive use of IT systems in everything from the management of rolling stock to the development of apps for passengers and provision for WiFi on rail premises.

Use of solar energy in a big way, launching of waste-to-energy project and proliferation of CNG in train operations are some of the green initiatives likely to be announced in the budget this time.

Besides an elaborate exercise of water conservation, including setting up of water recycling plants, will also be announced by Prabhu in his budget address on February 26.

(With PTI and Reuters inputs)

First Published: Feb 26, 2015 08:23 IST