Rail Budget 2015-16: Full steam ahead
With no announcements of new trains or new routes the Railway Budget 2015 put forth a clear target of consolidation and improvement of services. As a majority of measures were aimed at augmenting service quality, capacity, freight traffic and handling, th
The Railway Budget put forth by Railway Minister Suresh Prabhu on February 26 and passed by Lok Sabha on March 12 received mixed reactions from the industry. While the emphasis on technology and increased connectivity has been appreciated by many, the budget has been termed disappointing with regard to other announcements. Discussing the measures in the proposed investment plan for the Railway Budget 2015-16, Kalpesh
Sony, Vice President, Haiko Logistics India says, “Apart from FDI in railway projects and infrastructure, Public Private Partnership (PPP) is a good initiative for overall develop- ment of freight handling network of Indian Railways.” Manish Puri, Managing Director, APL IndiaLinx, though, is of an opposing view. Puri says, “There are no new initiatives that will attract investment and at the same time no visible effort is there to improve the working of existing policies.” Anupam Shah, Chairman, Engineering Export Promotion Council of India explains, “The Rail Budget has the potential to improve ease of doing business and improve connectivity of the manufacturing units with the ports and air connec- tivity. In the long run, It would certainly remove bottlenecks in the key infrastructure reducing cost of manufacturing in India.”
Time for metamorphosis
Prabhu’s maiden budget is being looked upon as an attempt to turn the national transporter into a financially self-sustainable organisation. Rajaji Meshram, Director Advisory – Infrastructure and Government Practice, KPMG explains, “The budget talks about new avenues of raising funds, JVs with PSUs and states for railway line construction along with foreign collaboration for areas where advanced technology is required etc.” The proposal to set up Transport Logistics Corporation of India (TRANSLOC) to make available end-to-end logistics services through PPP and developing the air cargo sector to facilitate the movement of cargo between Inland Container Depots and the gateway airports indicates the government’s intentions to transform the railways.
Sony suggests, “Connectivity of airports with Railways will open new
avenues to enhance EXIM trade to and from northern hinterland. Proposed TDC and multimodal logistics parks look promising to improve the delivery capability which is in perfect sync with ‘Make in India’ campaign.” Bharat Salhotra, Managing Director, Alstom Transport India stresses, “Prabhu’s maiden budget is aimed at infusing new purpose and direction in Indian Railways as industries depend on it. The budget has focused on getting the basics back on track.”
Sunil Shah, Country Manager, MIQ Logistics India, however points to issues that have been given a miss, “There should have been additional cargo coaches proposed to be added to all major passenger trains on major routes. We also need to see cargo hubs created across the country at stations with very few passenger trains for better utilisation of resources.”
Attracting private investments
Hoping to involve the private sector in various PPP projects, the budget stressed on private investment. Salhotra says, “A vibrant PPP model will lead to rapid modernisation of railways and will offer huge scope for private players. It will also allow the Indian Railways to induct from the private sector, new technologies based on life cycle costs rather than merely the capital cost of procurement.” The investors and private participants, though, are enthusiastic about the Ministry’s focus on increased investment for capacity building but are cautious in the absence of finer details. Meshram stresses, “The Railway Budget does not have any detailed announcements on the various PPP schemes and policies. It has an announcement that the PPP cell will be re-organised and that various schemes like Special Freight Train Operator Scheme, Private Freight Terminal Scheme, Liberalised Wagon Investment Scheme, etc. will be reviewed in the next three months.”
While Prabhu has targeted infrastructural development over a span of four to five years without detailing the source of funds, he also announced that the PPP policy needs to undergo a change to attract investments.
Amit Chaudhri, Chief Executive Officer, KRIBHCO Infrastructure Limited explains, “The announcement for private funds alone without any concrete action plan for the private participation and development of trust in the Railway’s PPP model is not going to help. There is a trust deficit with past experience of the Railways changing the goal-posts midway.”
Emphasising that there is need to look at making investment less cumbersome, Puri says, “Old policies have been retained which is good, but at the same time, there is a need to make the execution of these policies more user friendly. At present, there are multiple service tax related issues that are not resolved.”
Increase in freight rates
The decision to hike freight rates up to 10 per cent and the proposed hike in freight rates for 12 commodities in the range of 0.8 per cent to 10 per cent has drawn widespread criticism.
Shreyas Malkan, Assistant Vice President – Supply Chain, Reliance Communications views, “The freight rate increase proposed in this needs to be revoked. How can freight be increased when diesel prices have dropped significantly? The age old methodology of freight revenues subsidising passenger travel has to end. Due to this cross subsidy issues the railway’s share of total freight has collapsed from 89 per cent in 1951 to 30 per cent today.” Sony says, “In my opinion, this budget has not sufficiently addressed the concern of logistics cost which continue to remain high. In the long run, it will affect our cost competitiveness as compared to other Asian countries as a manufacturing hub. In the short run, however, prices of food grain, pulses, cement, coal and steel and products thereof are likely to go up following the proposal to hike rail freight.”
Shah says, “The principle of cross subsidising by enhancing freight rates is a wrong thing to do and will affect India’s cost competi- tiveness as well as contribute to environmental problems as cargo will then move to road transport.” External regulator & reforms
Reacting to the Budgetary provisions for appointment of a tariff regulator for the Railways by 2016, Puri says, “An external regulator to manage such initiatives is an absolute must, as it has proved impossible for Indian Railways to itself implement and manage these policies in a fair manner.” Chaudhri further suggests, “There is a need to revisit all PPP projects with monitoring committees consisting of customers and stakeholders along with having a ‘Rail Regulator’ to monitor price mechanism and pricing.”
As experts believe that financial and organisational reforms are badly needed to bring about a turnaround, CP Sharma, Managing Director, Daulat Ram Engineering Services recommends, “Zonal Railways as profit centre should be allowed freedom to fix tariff freight especially for train routes which have empty movement.”