Railway Budget 2016: Suresh Prabhu's difficult balancing act

Fares may remain untouched, some tweaks in freight rates likely

For Railways Minister Suresh Prabhakar Prabhu, the Budget for 2016-17 on Thursday could well prove his toughest hour. Expectations of a turnaround in the railways' breadwinning freight business have not been met and higher salaries to staff will disrupt expenditure statistics.

The finance ministry has made it clear any slackening in spending will be met by cuts in budgetary support. Also, the dip in crude oil prices that saved the railways Rs 5,000 crore in fuel cost is held by some to have eliminated the reason for a fare hike. And, high cargo haulage rates continue to drive customers to road transport.
Read our full coverage on Union Budget 2016
 

Prabhu, brought to the ministry in November 2014 to bring radical reforms, could in his second Budget speech touch upon new freight and bullet train corridors, creation of a fund anchored by the World Bank, additional credit from Life Insurance Corporation of India, progress on a rail regulator and the station re-development programme.

The rail ministry under Prabhu has earned goodwill through steps to improve passenger amenities, including a Google powered WiFi programme at stations, cleanliness on tracks, safety helplines for passengers and Twitter-led quick response to everyday problems of travellers. While this drive is expected to continue through this year's Budget announcements, the situation on the financial side is worrisome.

The recently announced recommendations of the Seventh Pay Commission will hit the railways through additional spending on wages of Rs 32,000 crore annually. This comes at a time when the finance ministry has cut the rail ministry's Rs 40,000 crore gross budgetary support by Rs 12,000 crore. Losses from heavy subsidisation of coaching services on account of social service obligation have ballooned to more than Rs 30,000 crore and the railways have failed to meet their freight and passenger revenue targets.

The railways had budgeted for a 15 per cent jump in total earnings to Rs 188,000 crore in 2015-16 from Rs 163,000 crore in 2014-15. Total expenses were budgeted to rise 12 per cent to Rs 162,000 crore. Put together, the ministry had hoped to bring down the ratio of operating expenses to operating income to 88.5 in 2015-16 from 91.8 a year ago.

However, freight grew by one per cent to 816 million tonnes in April-December 2015 and the passenger volume continued to nosedive. The railways earned Rs 136,000 crore in April-January against the targeted Rs 141,000 crore.

This year's Rail Budget is likely to focus on capacity creation. Prabhu may announce an annual plan size of Rs 125,000 crore, 25 per cent higher than this year's Rs 100,000 crore. A bulk of this spending will be targeted at projects aimed to decongest the network like adding lines and safety upgrades. However, Prabhu will have to rely more on extra budgetary resources for building capacity for the railways.

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RIDING PRABHU'S TRAIN OF THOUGHT

• Union Rail Budget 2016-17 will be tabled at noon today
   
• The second Budget by Suresh Prabhu will be presented at a time when the railways is going through a rough patch
   
• Will focus on continuing efforts at capacity creation, mostly through funding from outside resources - private sector, financial institutions and state government's joint ventures
   
• Prabhu can ill-afford to be seen having failed to meet FY16's operating ratio target of 88.5. However, all preliminary indicators suggest he may need a reality check
   
• The share of gross budgetary support in total plan size would be a key number to watch
  

 

Other crucial numbers will include the budgeted rise in freight volumes and the total hit taken by the railways on account of social service obligations
 

Prabhu had increased freight rates by an average 4% in last year's Budget without mentioning it in his speech. Would there be hidden messages this time, too?