 "A fortnight before Budget, little recovery in Railways' finances")
Less than a fortnight before the presentation of the Railway Budget for 2016-17, the Indian Railways' financial situation has few positives to show. Last year's announcement of an ambitious target of 85 million tonnes of additional freight loading during this financial year is unlikely to be met, and passenger volumes have failed to pick up.
However, Railway Minister Suresh Prabhu has managed to ensure forward movement on the foreign direct investment (FDI) -led bullet train and locomotive projects - worth around Rs 1.4 lakh crore - that had been stuck for long. French transport giant Alstom has just announced an investment of Rs 1,300 crore in setting up an electric locomotive manufacturing factory at Madhepura in Bihar.
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Sagging freight and passenger traffic
In his maiden budget last year, Prabhu had estimated freight traffic to grow to 1,186 million tonnes in 2015-16 from 1,101 mt the previous year. Of the incremental target of 85 mt - a record of sorts - 42 mt was to come from coal, the largest component of the Railways' commodity traffic basket. Also, an additional nine mt was to come from iron ore and seven mt from cement.
Ahead of the Budget for 2016-17, Prabhu has acknowledged that subdued freight volume is a major problem area for railway finances, apart from the impact of implementation of the 7th Pay Commission's recommendations. His concerns are not difficult to understand. There is enough coal for transport, and railway rakes are available in plenty as well, but demand for power - and in turn the requirement of coal from utilities - has fallen sharply, thanks to the precarious financial situation of power distribution companies.
The Railways carried 816 mt of freight between April and December of the current financial year. This was seven per cent less than the targeted 880 mt and a mere one per cent increase over 808 mt carried in the same period last year. The Railways earned Rs 80,526 crore from freight by the end of December this year, Rs 2,150 crore less than the targeted Rs 82,676 crore. The freight earning between April and December 2015, however, was 6.2 per cent more than the Rs 75,779 crore in the same period the previous year.
Concerned over the freight problem, the railway ministry's brass last month held a series of meetings with counterparts in the coal and power sectors. At one such meeting chaired by Railway Board member (traffic), Mohammed Jamshed, it was noted on January 13 that the railways' rake supply had increased 10 per cent in the April-December period, against a 9.1 per cent increase in Coal India's production. "The rake loading could have been further increased, but for the muted demand from the power sector due to unprecedented coal stocks at power plants - of 32 mt, compared with 13 mt in January last year," said a senior railway ministry official.
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Similarly, passenger earnings of Rs 33,105 crore during April-December 2015 were Rs 1,937 crore less than the target of Rs 35,042 crore but 5.4 per cent more than the Rs 31,406 crore earned from the passenger segment during the same period last financial year.
Signalling a worsening financial situation, the Indian Railways' operating ratio in the first half of current financial year - money spent to earn Rs 100 - stood at 97.8, the highest in more than a decade according to a recent report. The ministry contests that figure, arguing the ratio is not calculated midway in a financial year. The transporter is working on an operating ratio target of 88.5 for the current financial year, against 91.25 recorded last financial year.
Bullet train and modern locos
A dismal traffic performance apart, the railway ministry has fast-tracked the implementation of the bullet train project. In a major achievement for Prabhu, the Union Cabinet in December last year approved the biggest FDI in the railway sector - the Rs 98,000-crore Mumbai-Ahmedabad bullet train project. The 500-km corridor, to be opened in 2022, will be built on Japanese Shinkansen technology with 80 per cent funding from that country at 0.1 per cent interest rate. The news of India's first bullet train project had followed the government's decision to award two locomotive projects, worth more than Rs 40,000 crore, in Bihar to French firm Alstom and US-based GE. The announcement has been hailed as a major feather in Prabhu's cap.
To be commissioned over two years, the factories will supply 200 locomotives of 6,000 Horse Power (HP) and 12,000 HP annually to the Indian Railways, adding to the existing supply of nearly 650 locos of 4,000-6,000 HP. GE will supply 1,000 diesel locos over 10 years at a basic cost of Rs 14,656 crore from Marhowra, and Alstom will deliver 800 locos over 11 years at a cost of Rs 21,389 crore from Madhepura.
Institutional financing & capex
Prabhu has delivered on another major promise made last year - of raising funds through institutional financing. The Indian Railways has already received Rs 2,000 crore from Life Insurance Corporation (LIC) as the first tranche of the total Rs 1.5-lakh-crore long-term funding tied up with the state-run insurer, to restart its investment cycle through this financing mechanism. The idea here is to borrow funds from institutional sources to ensure the availability of funds for the next five years for completion of projects critical for revenue generation.
Despite these achievements, the finance ministry has cut down the Railways' gross budgetary support for 2015-16 to Rs 28,000 crore from Rs 40,000 crore estimated earlier, citing "poor pace of work". And, the Prime Minister's Office has pulled up Prabhu for lack of spending. At the end of November 2015, the Railways' capital expenditure for the current financial year stood at Rs 44,000 crore, a 16 per cent jump over Rs 38,000 crore spent in the corresponding period the previous year.
