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LIVE - Gowda's rail budget: will it be pragmatism or populism?

Railways minister DV Sadananda Gowda will unveil his maiden Railway Budget soon, with expectations high that he will offer bold plans to improve the service — a lifeline for 23 million Indians every day.

india Updated: Jul 08, 2014 11:42 IST

Prime Minister Narendra Modi's new government will unveil its maiden railway budget soon, with expectations high that there will be bold plans to improve the service — a lifeline for 23 million Indians every day.

The rail budget speech is likely to contain a big imprint of PM Modi, as railways minister DV Sadananda Gowda may elaborate on several of Modi's pet schemes including plans to harness alternative fuel sources such as solar power and bio-diesels.

In a speech last week, Modi had hinted at how much of a revamp he believed the railways needed, telling an audience in Kashmir that he wanted an upgrade of stations, many of which look much as they did under the British.

"Why do our railway stations need to be so old, why can't they be better than our airports?" he said, after waving a green flag to inaugurate services on a stretch of track in Jammu's Katra.

Live Blog Live coverage of railway budget 2014

Gowda will unveil policy initiatives aimed at restructuring and modernising the cash-strapped public transporter through the infusion of private investments including Foreign Direct Investments (FDI) in his budget speech on Tuesday.

Read: Gowda, Mr Dependable of Karnataka politics, presents rail budget today

The new government has already increased railway passenger fares by 14.2% and the freight carriage charges by 6.5%. However, it will need more funds from international lenders to place in bucks to finance long gestation projects.

"If the railways are to fully benefit the climate, the economy, society, the government needs to bring in more money... including from private and foreign investment," said G Raghuram, professor at the Indian Institute of Management, Ahmedabad, and co-author of a report about railway modernisation.

"Good economics over bad politics of the past" is likely to be the running theme of the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) government's first rail budget.

It is likely to contain measures aimed at building the Mumbai-Ahmedabad high speed corridor and a slew of measures to ensure passenger safety and to provide for cleaner stations and more travelling comfort to passengers.

Gowda's budgetary exercise could also contain a dose of realism, as innovative steps to cut costs and bring in greater transparency and efficiency are also likely to be announced.

Gowda is expected to propose steps to boost revenues as the Indian Railways is saddled with a huge cash cruch of Rs 26,000 crore amidst a decline in the growth in passenger earnings.

Former railways minister Mallikarjun Kharge had set a revenue target of Rs 1.65 lakh crore in the interim budget which includes Rs 1.06 lakh crore from goods and Rs 45,255 crore from passenger and balance from coaching and other sources.

Railways, which have sought Rs 38,000 as Gross Budgetary Support is likely to keep the annual plan at about Rs 64,000 crore.

The tougher task for Modi's government will be finding a sustainable fix to the funding crunch facing the railways, including by allowing FDI into the network, a move resisted by the railways in the past.

Read:Can PM Narendra Modi put railways back on track?

By a conservative estimate, the railways need Rs 20 trillion ($334 billion) of investment by 2020, according to economist Tirthankar Patnaik at Religare Capital Markets said.

That's far in excess of the Rs 1.4 trillion the sector is estimated to earn this year even after an unpopular fare-hike pushed through last month.

"Though there are some areas where the private sector can play a role, the bulk of the investment will have to come from the government," said Shri Prakash, a former member of the Railway Board.

Prakash said Modi needs to strike a balance between appealing to private profit-seeking investors and keeping fares affordable for the millions who depend on the network.

Sectoral also experts say the budget would bring in fiscal stability in the railways by sticking to the recent hike in fares and fund inflows for modernisation of infrastructure development through public private partnership (PPP) models.

Watch:Commuters hope for easy fares, better facilities ahead of Railway Budget

"The railways need to monitise the significant value of tangible and non-tangible assets it has and raise funds through the PPP model. The budget also needs to develop the PPP route for the port to inland services of the railway," said Jaijit Bhattacharya, partner, infrastructure and government, KPMG in India.

The experts also say the railways should give out a "road plan" on how to connect with the manufacturing hubs, ports and the proposed "smart cities".

The budget is likely to spell out the plan for having a "Diamond Quadrilateral" connecting the metros with high-speed trains as said by the PM.

The need for funding such projects may force the government to open the doors for private and foreign funds participation in the segment.

"Big ticket announcements such as high speed railway projects and station infrastructure improvements through private partnership is expected," Vishwas Udgirkar, senior director, consultation firm Deloitte India, told IANS.

HT Edit:Railway fare hike could be the first of many bitter pills

The development of railway infrastructure like cold-chain storage near railway lines is seen a key tool to fight inflation by reducing the supply-side bottle necks. This will also create more business opportunities for the companies associated with the railways.

IIM's Raghuram said allowing private money into freight was a simple and relatively easy shift that would boost the economy.

Railways' share of freight has fallen from 90% of the country's cargo in 1950 to one-third today, as congested tracks and slow speeds force shipments onto roads - in turn clogging them.

As a measure to ramp up profits in freight transportation, a proposal for the "e-registration of wagons on demands" is expected to be announced.

"The present practice of manual allocation of wagons is primitive and encourages corrupt practices. If this proposal comes through, approximately an additional Rs. 10,000 crore can be earned in freight transportation," sources said.

It has been proposed that a pilot project on this scheme should begin from the coal-rich Jharkhand next month.

Information Technology initiatives to bring transparency and cut costs are likely to be elaborated upon by the railway minister.

Uttar Pradesh - where the BJP reaped a huge political victory in the last general elections – is likely to figure high up on Gowda's scheme of things, with indications being that Gowda will announce proposals to set up locomotive shed at Ghazipur and Mughalsarai.

Gowda is also likely to address demands of newly created Telangana, with one option being to bifurcate the South Central Railway (SCR) zone and divide it up between the Telangana and Andhra regions.

Stocks of companies associated with the railways made healthy gains on Monday a day ahead of the budget. At the Bombay Stock Exchange (BSE), Container Corporation of India's stocks gained 4.42% or 56.15 points at Rs.1,325.45 from its previous close of Rs.1,269.30.

Shares of wagon maker Texmaco Rail and Engineering grew 14.04% or 18.10 points to trade at Rs.147 around 3.00pm, rising from its previous close of Rs.128.90.

Scrips of Kalindee Rail Nirman (Engineers) increased 4.96% or 6.40 points at Rs.135.35, moving up from previous close of Rs.128.95.

Stocks of another wagon manufacturer, Titagarh Wagons, reported gain of 4.99% or 15.70 points at Rs.330.55 from its previous close of Rs.314.85. Hind Rectifiers shares too made healthy gains, they rose 4.92% or 2.80 points at Rs.59.75 from previous close of Rs.56.95.

(With IANS and Reuters inputs)

Full coverage: Countdown to Union Budget 2014

First Published: Jul 08, 2014 09:24 IST