Slow-down lurks behind robust numbers

RAILWAY BUDGET 2007-08

Railways sit on cash surplus of Rs 20,000 cr; Efficiency ratio an all-time best.

The railway minister, Lalu Prasad, presented impressive revenue and profit numbers, along with traffic growth, for 2006-07, in Parliament today.

But he failed to match that stellar performance with his relatively modest revenue growth targets for the next financial year. The focus of the Budget was more on freight reductions in the 5-6 per cent range for key items like petroleum and iron ore, amidst talk of fighting inflation. There were also mostly token reductions in passenger fares, especially for air-conditioned travel.

The financial highlight, shouted out by the minister with evident glee, was a cash profit of over Rs 20,000 crore this year "" one of the several landmarks reached. The key index, which is the operating ratio (of expenses to receipts), has improved from 83.2 per cent in 2005-06 to 78.7 per cent in 2006-07.

For 2007-08, gross traffic receipts are set to jump 13 per cent down from 16 per cent this year and surplus will grow nearly 8 per cent to Rs 11,450 crore from 72 per cent this year. The operating ratio shows a marginal deterioration to 79.6 per cent.

The slower growth numbers for next year, according to some experts, reflect capacity constraints showing up on the railways. The Budget addresses this point with annual Plan investment of over Rs 32,000 crore for next year, a 19.1 per cent increase; but that is a slowdown from the 26.6 per cent increase in Plan investment this year.

The bulk of the money will go into buying more wagons and locomotives, and then on track development (doubling lines, broadening track gauge and adding new lines).

There is also an allocation for investing in the new freight corridors from the north to Mumbai and Kolkata, approved last week by the Cabinet.

The paradox of the Budget numbers is that while the minister announced fare and freight cuts both last year and this year, these do not find a reflection in the Budget's operating numbers.

For instance, freight revenue for 2006-07 is up by 16 per cent, although the goods carried (as measured in terms of tonne-km) increased by only 8.5 per cent.

Similarly, passenger revenue is up this year by 15 per cent, though passenger-km travelled is up by only 13.5 per cent. The same pattern extends into next year, with revenue increasing faster than traffic, despite the tariff cuts.

Observers explain that these contrary signals are the result of unannounced mid-year increases in freight rates, as also a better freight mix as the railways attract more high-value traffic.

Similarly, a better share of upper-class passengers will raise the yield per passenger-km.

The railway minister took advantage of the fare and freight cuts to claim that his Budget is anti-inflationary.

"Our main achievement is that we have been able to slap inflation on its face by not raising passenger fares and freight rates, despite having adequate reasons for doing so," Prasad said after presenting his fourth Railway Budget in a speech that was interrupted by concentrated heckling from the Opposition over Bofors accused Ottavio Quattrochi's extradition issue.

Finance Minister P Chidambaram described the Budget as "passing on the benefits of growth to the consumer."