Global slow­down, wages head­winds for growth

The Pak Banker - - OPINION - Somesh Jha

RAIL­WAY Min­is­ter Suresh Prabhu, in his se­cond bud­get, an­nounced in­creas­ing in­vest­ments by 21 per cent to Rs.1.21 lakh crore in 2016-17 - more than dou­ble the av­er­age in­vest­ments made by the pre­vi­ous United Pro­gres­sive Al­liance (UPA) govern­ment in the 2009-14 pe­riod.

While most an­a­lysts were scep­ti­cal over the source of this in­vest­ment prom­ise, Mr. Prabhu was can­did in ad­mit­ting that "th­ese are chal­leng­ing times" for the Rail­ways. In 2015-16, the plan out­lay stood at Rs.1 lakh crore. "Th­ese are chal­leng­ing times, may be one of the tough­est. We are faced with two head­winds, en­tirely be­yond our con­trol; tepid growth of our econ­omy's core sec­tors due to in­ter­na­tional slow­down and the loom­ing im­pact of the 7th Pay Com­mis­sion and in­creased pro­duc­tiv­ity bonus pay­outs," Mr. Prabhu said.

The bud­get fac­tored in Rs.20,500 crore as im­pact of the rec- om­men­da­tions of the 7Th Pay Com­mis­sion in 2016-17; lead­ing to a de­cline in the pro­jec­tion of the op­er­at­ing ra­tio to 92 per cent (the Rail­ways will spend 92 paisa to earn a ru­pee). Op­er­at­ing ra­tio is a mea­sure of fi­nan­cial per­for­mance of the In­dian Rail­ways and a lower ra­tio means bet­ter ef­fi­ciency. In 2015-16, the op­er­at­ing ra­tio de­clined to 90 per cent from 91.3 per cent in 2014-15.

"The de­cline in op­er­at­ing ra­tio from 88 per cent to 90 per cent, and to 92 per cent for next year is along ex­pected lines, with freight and pas­sen­ger traf­fic re­main­ing nearly flat, and ex­penses con­tin­u­ing to in­crease. In this con­text, how the in­creased in­vest­ment tar­get of Rs.1.2 lakh crore will be met, be­comes more per­ti­nent," said Man­ish Agar­wal, Part­ner and Leader - In­fra­struc­ture, PwC In­dia. Shashikant Hegde, chief ex­ec­u­tive of­fi­cer of Projects To­day raised ques­tions over the source of the re­quired in­vest­ment money.

"Most of the state gov­ern­ments cof­fers are empty and pri­vate play­ers are cur­rently not in a mood to pick up PPP projects. While in­ter­na­tional agen­cies are open for in­vest­ing in In­dian projects, they de­mand more re­forms and at faster pace," Mr. Hegde said.

The govern­ment plans to raise Rs.20,985 crore in 2016-17 from in­sti­tu­tional fi­nanc­ing, a 119 per cent in­crease from the re­vised es­ti­mates of 2015- 16. How­ever, Rail­way Board Chair­man AK Mit­tal said de­spite the bur­den of Sev­enth Pay Com­mis­sion, the op­er­at­ing ra­tio is pro­jected to move up by two per cent. "Usu­ally, the bur­den of Pay Com­mis­sion in­creases the op­er­at­ing ra­tio by five per cent," Mr. Mit­tal said.

As both pas­sen­ger and

freight traf­fic de­clined, the rev­enue earned by the In­dian Rail­ways was hit. The to­tal rev­enue de­clined by 8.9 per cent to Rs.1.72 lakh crore in 2015-16 com­pared with last year. The gross traf­fic earn­ings were 8.6 per cent less than the tar­get of Rs.1.83 lakh crore in 2015-16. The freight earn­ings were hit due to poor per­for­mance by the core sec­tor - which con­sti­tutes around 88 per cent of the goods trans­ported by the In­dian Rail­ways. Mr. Mit­tal said the to­tal pas­sen­ger traf­fic de­clined in the short dis­tance traf­fic as peo­ple may have cho­sen road as al­ter­nate means of trans­port. He, how­ever, added the traf­fic on long-dis­tance routes grew by around 5 per cent.

Gross traf­fic earn­ings were 8.6 per cent less than the tar­get of Rs.1.83 lakh crore In 2016-17, the min­is­ter pro­jected the gross traf­fic re­ceipts at Rs. 1.85 crore, an in­crease by 10 per cent over the re­vised es­ti­mates of the present year. An in­cre­men­tal traf­fic of 50 mil­lion tonne in freight is ex­pected in 2016-17 as the govern­ment is look­ing to bring down freight tar­iffs and look to in­crease the bas­ket of freight goods.

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