Gowda prescribes bitter pill to shore up Railways’ finances

Minister blames the deteriorating health of Railways on an irrational tariff policy.

By: ENS Economic Bureau | New Delhi | Published: July 9, 2014 12:52:58 am

Faced with a fast depleting surplus and lower than estimated earnings, the NDA government’s maiden Railway Budget on Tuesday made no bones about the need to stabilise finances as their top priority for the sector. In a striking departure from every rail Budget presented in the last decade, railway minister DV Sadananda Gowda spent the first half of his Budget speech talking about only this.

“This state of affairs of Indian Railways need immediate course correction,” said Gowda. The minister has refused to take on fresh projects and has said from now on the Railways will depend more on domestic and foreign private capital for financing fresh projects. He said he will move a Cabinet note on FDI and opened up a revised public private partnership avenue to finance marquee projects like bullet trains.

Blaming the rising social service obligations that sucked out over Rs 20,000 crore from railway finances in FY13, Gowda said India’s largest infrastructure sector is left with precious little to finance ongoing projects that need over Rs 5 lakh crore in the next decade. Of 676 projects sanctioned in the last 30 years, 359 projects remain incomplete and require Rs 1,82,000 crore.

Gowda blamed the fast deteriorating finances of the Railways on an irrational tariff policy that kept passenger fares artificially low and led to losses of 23 paise per passenger kilometre in FY 13. This was in turn compensated by high freight tariff that ate into the goods business. Reflecting this lack of resources, the Railways’ surplus, which stood at Rs 11,754 crore in FY08, was just Rs 3,783 crore in FY14 and is estimated to further decline to Rs 602 crore in the current financial year. In fact, from every Re 1 earned, the Railways spends 94 paise and retains just 6 paise as surplus.

“It is unheard of a business that has a monopoly, that has nearly 125-crore customer base, that has 100 per cent sale on advance payment; but still starved of funds,” Gowda said.

The operating ratio, which is a measure of the Railways’ profitability, is expected to improve marginally to 92.5 per cent in the current fiscal from 93.5 per cent last fiscal after deteriorating by 2.7 per cent. Now to get its finances on an even keel, the Budget has proposed its highest ever plan outlay of Rs 65,445 crore in the current fiscal with a gross budgetary support of Rs 30,100 crore.

But to keep its spending in check, the market borrowing was lowered to Rs 11,790 crore in FY15 as against the Rs 13,800 crore in the Interim Budget. Internal resources are estimated to generate Rs 15,350 crore and another Rs 6,005 crore would be raised through public private partnerships. The rail Budget has also proposed leveraging resources of railway PSUs and attracting foreign direct investment to get additional funds.

In FY15, the total expenditure is estimated at Rs 1,49,176 crore and total receipts at Rs 1,64,374 crore.

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