All eyes on Suresh Prabhu as Railway Budget draws closer

Railway Minister Suresh Prabhu is all set to present the budget on Thursday (Feb 25). His budget speech will be keenly followed by all to see if reforms announcement are made to boost the sector or any change in passenger fares.

Industry body Asscoham has asked Prabhu to muster political courage and go in for a hike in the passenger fares, saying they have been kept low at the cost of freight traffic. It said the fare increase would reduce the drastic losses on passenger traffic, now running at 68 per cent of passenger earnings.

“There is lack of political will to raise passenger fares even though the reluctance is not shared by passengers, who would be willing to pay more provided the hike is accompanied by better services including timely arrival of trains, cleanliness at stations, safety and improvement in food,” the chamber said a memorandum to the Railway Minister.

According to Deutsche Bank, railway spending is likely to be flat in the budget due to the proposed pay hike in the 7th pay commission.

Indian Railways is considered to be the backbone of India’s economic development. With a widespread network of nearly 65,000 km route length, Indian Railways runs 12,000 trains every day to carry around 23 million passengers and 7000 freight trains per day to carry around 3 million tonnes (MT) of freight traffic.

According to the brokerage house ICICIdirect.com, Indian Railways has suffered from years of low investment as populist policies of subsidising passenger traffic choked the resources generation capability. In addition, time overruns and cost escalations in ongoing projects have further compounded problem. A break-up of railways earnings provides detail about segments contributing to Indian Railways’ earnings. Traditionally, the freight segment has always cross subsidised the passenger segment with around 67% contributed by freight and 27% by the passenger segment whereas the remainder coming from sundry and other coaching services. As per FY15-16 budgeted estimates the total railways earnings were expected to grow 16% YoY. However, according to January YTD numbers, the total railway earnings grew 5 per cent, an approximate deficit of 10 per cent.

With the help of ICICIdirect.com, we look into the sector’s financial and 5 top budget wish list

Hike in passenger, freight rates to boost revenues: Amid slowing earnings and freight traffic, Indian Railways is also burdened to the extent of Rs 28,000 crore towards implementation of the recommendations of the Seventh Pay Commission. As the substantial portion of revenues is from fares, hike in passenegr fares and freight charges are the need of the time. Conceding to the shortfall in freight loading due to an economic slowdown, revenue generation targets are likely to be underachieved.

Rail Tariff Authority (RTA): This particular tariff regulator got a clearance in January 2014. As per latest updates, the tariff regulator is expected to be in place by FY19. Expediting its formation is significant as it who would decide the fares and freight rate. The formation of a regulator would facilitate a new pricing regime, thereby rationalising cross subsidisation between segments and improve the fare to freight ratio.

Freight earnings: Around 65 per cent of railways earnings come from freight. Therfore, taking steps in the budget that could boost freight and railways financial performace is the need of the hoir. With the development around eastern and western dedicated freight corridor, volumes are expected to get a positive kicker.

Adoption of IT facilities: This year budget should focus more on use of information technology in passenger amenties like better e-ticketing systems, real time updates on trains via mobile app, implementation of e-governance in the railway departments. Use of social media platforms would enable personal interaction with travellers.

Passenger amenities: Passenger amenities should be an important wish list in the budget with special focus on increasing facilities and cleanliness of trains and railway stations.

Story Courtesy: The Financial Express