Financial Daily from THE HINDU group of publications
Monday, Feb 28, 2005
Railway Budget 2005-06: A story of missed signals
S. D. Naik
The Railway Minister has left both passenger and freight rates untouched. In fact, the freight rates for kerosene and LPG have been cut by 3.7 per cent and 2.7 per cent respectively.
True, there was hardly any scope to increase freight rates considering that only in November 2004, freight rates for selected items, including coal and iron ore, bauxite, manganese ore and clinker, were hiked by 7.7 per cent while the rate for cement was raised by 3.7 per cent (effective from November 27, 2004).
This was done to offset partially the additional burden of the fuel bill and steel prices. But the Railway Minister had steadfastly refused to raise lower-class passenger fares.
In the latest rail budget, there was indeed a strong case for a modest increase in second-class sleeper fares and in ordinary train and suburban season tickets, which remain heavily subsidised.
Such a step was all the more desirable in order to provide better passenger amenities and to augment capacities on highly congested routes, where travel conditions have been deteriorating rapidly.
Passenger traffic, which currently incurs a loss of around Rs 5,300 crore every year, is expected to register an increase of 4 per cent in 2005-06. Thus the loss on this segment may increase further during the year.
Unfortunately, even while steadfastly refusing to increase passenger fares, Mr Lalu Prasad has announced the usual quota of new trains as many as 46.
In addition, it is proposed to introduce 54 pairs of new train services; extend the run of 28 trains; increase the frequency of 10 pairs of trains; and increase the speed of 30.
If experience is any guide, many of these schemes will languish for want of adequate supporting infrastructure.
In addition, the Railway Minister has also announced a plan to set up a wheel manufacturing plant at Chapra. This clearly goes against the recommendations of many expert groups to either close down or privatise the plethora of Railway workshops and captive manufacturing units, which are a drag on Railway finances. Thanks largely to the higher growth logged by the economy and a quantum jump in the movement of steel, coal and cement, there has been a growth of 7.67 per cent in freight loading during the first nine months of this fiscal.
This has emboldened the Railway Ministry to raise the freight target for the current fiscal to 600 million tonnes from the 580 million tonnes fixed earlier.
In other words, it is now estimated that there will be an incremental loading of 43 per cent over the previous year.
The freight target for 2005-06 has been fixed at 635 million tonnes, and freight earnings are targeted to increase from Rs 28,745 crore to Rs 30,450 crore.
Gross traffic receipts for 2005-06 have been estimated at Rs 50,968 crore, Rs 4,183 crore higher than in the revised estimates (RE) for 2004-05.
Ordinary working expenses of the Railways for the coming year have been estimated at Rs 35,600 crore, while net revenue is estimated at Rs 5,914 crore.
Of course, in case of a further hike in fuel costs or other working expenses, this net revenue figure could go haywire. It is a matter of some satisfaction that appropriation to the Depreciation Reserve Fund will be stepped up. It will be Rs 3,604 crore, up 60 per cent over BE 2004-05.
This, apparently, has been made possible thanks to an improvement in the operating ratio to 91.2 per cent in 2004-05 against the budgeted 92.6 per cent.
In the absence any revenue generation efforts, the size of the Annual Plan of the Railways for 2005-06 will witness but a modest increase to Rs 15,349 crore.
Of this, Rs 7,230.81 crore will come from the General Exchequer (gross budgetary support) and will include Rs 2,699 crore as contribution towards Special Railway Safety Fund (SRSF) and Rs 710.81 crore from the Central Road Fund (CRF).
An amount of Rs 4,718.19 crore is expected to come from internal resources and Rs 3,400 crore through borrowings.
It may be recalled that for 2004-05, the Railways' Annual Plan was pegged at Rs 14,498 crore, involving gross budgetary support of Rs 7,028 crore (48 per cent), internal generation of Rs 4,028 crore (28 per cent) and market borrowings by Railway Finance Corporation amounting to Rs 3,400 crore (24 per cent).
Thus it is evident that despite economic buoyancy, the Railways has not been able to step up the Plan size for 2004-05 to the desired extent.
The Railways had sought additional budgetary support of Rs 4,500 crore but it appears that the Prime Minister's office did not oblige, although the greater part of the support demanded was to be directed towards the Rs 24,000-crore Integrated Railway Modernisation Programme (IRMP) spanning five years till 2010.
However, the Railways has been allowed to access extra budgetary resources to the extent of Rs 3,000 crore for financially viable schemes.
The rider is ostensibly to discourage more populist schemes in the name of development.
Moreover, additional funds of Rs 1,365 crore have been granted for national projects in J&K/North-East regions, and Rs 358 crore are to be released for works under Rail Vikas Nigam Ltd (RVNL).
The five-year IRMP announced last year, and involving a total outlay of Rs 24,000 crore, has now been given concrete shape.
It envisages the running of 150 kmph passenger trains and 100 kmph freight trains on the golden quadrilateral and its diagonals; introduction of higher axle load; double-stack containers; light-weight, corrosion-resistant aluminium wagons; modernisation of track, bridges, signalling equipment and telecommunications.
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