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Wednesday, March 2, 2011

Railway Budget 2011-12 – Journey to No Where – Veeraiah Konduri

Published in Indiacurrentaffair.org

Minister for Railways, popularly known as MR in power corridors of Delhi is proceeding with UN-
imagined pace in order to ensure bankruptcy of historical Indian Railway (IR). This is once more
evident from the budget presented to Lok Sabha on February 25th 2011. Apart from mismanaging
the finances of Indian Railway, the current budget is charting the disastrous course of PPP as well
as depending up on Capital markets to fund their infrastructural projects.

On the face of the detailed statement of accounts, it looks as if all is well. But once we digs deep,
the skeletons tumbles out of IR coffins. As majority of the analysts commented, the Operating Ratio
is an index to gauge the health of Railways. It is going down from 76 % in 2007-2008 Railway Year
to 92 % in 2010-2011. This is after Railway board admits that during the last two months of current
fiscal, they charged heavily to present a sober picture before the nation. If all depreciation is to be
taken in to account, operating ratio will go up until Rs. 115. Means, Railways is spending Rs.115 to
earn Rs.100, thus resulting in the net 15 % deficit in Railway budget. The cash reserve ratio is also
not as good as it was released to the public. They achieved this cash reserve ratio also after
depressing the accounts through lesser appropriation, lesser dividends. After all these
mismanagement the Cash reserves goes down to Rs 1328 crores. Presume what would have been
the actuals !

The more dangerous aspect is charting the PPP cart. Since last few years, Government is in the
process of initiating projects with Public-Private Partnership under the guidance of Planning
Commission. During the preparations to the current budget they achived the grand bargain it seems.
Mamata Benerjee boasted herself in saying that Grass Budgetary Support to Railways will stood at
57,630 crores. But she did not informed the house of people that out of this proposed GBS, IR is
intended to mobilize a huge, 35-40 %, which equals to 20,454 crores from Capital Market
operations. Government is also considering the to issue tax free bond to the tune of another 10,000
crores thus leaving around 20,000 to be doled out from General Budget. Here lies the grand bargain.
All the news papers flashed photos of Mamata Benerjee coming out of Janapath ( where UPA
Chairperson Sonia Gandhi resides) Race Course (the prime ministerial power hose) Planning
commission offices before the budget. All the reports that were published informs us that she had
gone to convince all those sitting at these places about her plans to dole out more to Bengal in view
of upcoming assembly elections. If we ties the knots between the points and consider the speech by
the Minister’s yesterday proves that the fact is otherwise. She visited all those places to reach out a
policy compromise. It looks like the compromise is that she will present a railway budget to her
liking with out asking for more financial backing from union government and in tern she has to
allow the Railways to gradually shift its developmental strategy from government funded to market
depended. This is the logical conclusion that one can reach after careful consideration of the
developments. If this guess is proved right, then nothing will be more disastrous for Railways as
well to the nation more than this.

In this change of strategy the situation will be like this. As per the budget documents informs, IR is
supposed to raise 20,454 crores from the Capital market, that means it has to divest the shares in
Rail PSUs or resort to market borrowings. This will have cascading effect on the over all Capital
market. As already the government rolling back the its stimulus as the growth rate is picking up.
That implies tightening of credit market which RBI already resorting to in phased manner. Due to
this the liquidity is drying up and private enterprises are complaining about the lack of required
liquidity to fund their projects. At this if Railways competing for another 20,000 crores from
Capital market means, the pressure on liquidity is invariably goes up which will lead to possible
scaling up of interest rates with its spiraling effects on the economy. The other step involves in this,
divesting the shares from Rail PSUs, which are earning considerable profits as per the Minister’s
statement before the house, lead to gradual privatisation of Rail infrastructure in a phased manner.
So far despite the country is effected by privatisaion spree over the last three decades, the Railway’s
are unaffected by this except in an indirect way such as leasing out city side developments, running
of railway canteens, in train services. Moreover, how can private capital come forward to fund an
enterprise which is spending Rs. 115 to earn Rs.100, which is against the basic formulation of the
business ? In that case, under the plea of no private capital is coming forward, the government is in
all likelihood will move for cheaper pricing of its assets in the form of reducing the premium when
it resorts to IPO. Already IPO market is a buzz with this likelihood. Here it is pertinent to make note
of developments on London Transportation front. The London government, which allowed private
capital to build the required infrastructure and maintain London trains, is rolling back after three
decades of bitter experiences as it failed comprehensively to serve the nation under private
management. At this point in time, the Indian government is looking for private capital to enhance
the rail infrastructure in India.

Another problem with this kind of involving private players in building rail infrastructure is also in
front of us. During the last budget, the government announced 52 projects under PPP mode. Five
years back, the much touted Delhi Mumbai Fright Corridor is also unveiled under in the same
manner. As per the original target, DFC is supposed to be completed by 2011-2012 FY, where as
we can’t find railway track laying for even a single kilometer under this project despite the fact of
floating a special purpose vehicle. The Minister admitted in her budget speech that the IR is vetting
and the proposals are undergoing the process of due diligence ! The actual reason is in both ways.
Under the influence of on going global financial crisis, all the private players who came forward to
become partners under PPP with Indian Railway delayed their decisions. Another important factor
is that the IR does not have minimum fund to contribute its share under PPP for all these projects.
Due to these two reasons, all the PPP projects are resting in the cupboards of Rail Nilayam, Delhi.

Before considering new promises in Friday’s speech, let us consider the old promises. In the last
budget, she announced that by 2020, India is going to build another 25,000 kilometer rail tracks a
fresh and also proposed, as part of her grand Vision 2020 for Indian Railways, doubling of 12,000
KM lines, modernizing for another 14,000 Km lines, as well as converting the gauge for another
12,000 Km rail tracks ! Leave out the rest and consider the commitment for the new track of 25,000
Km by 2020. We are standing in 2011. Means another 9 years left. There is no assessment report
before the parliament for its scrutiny what had happened since the announcement of Vision 2020.
The minister also not took care of informing the House of People, what progress IR has achieved
during the last two years since she became the minister for second term. All she could inform in the
budget papers is that “ will be done”. There is not even a reference to the time line by which these
projects will be completed, how much has already been earmarked, spent and what is the
requirement. All these projects are differed to 12th plan period and she announced another grand
scheme Prime Minister Rail Vikas Yojana.

According to one assessments, so far there are 400 projects pending under Indian Railways. Some
goes back to three decades also. At this stage she announced scores of new projects beginning with
a diesel coach factory in Manipur to Bridge factory in Jammu & Kashmir. There is no dearth of new
lines, new trains and extension of existing trains. All these will result in the over crowding the age
old tracts which at majority of the places in dilapidated conditions due to non-maintenance at
regular intervals. Regarding the staff though she announced that they will initiate recruitment
process, no one knows how long it will take. There is no information about what all the new trains
announced in the last budget and implemented till now for a comparative analysis. With this kind of
carelessness, one can’t say any thing except that this is a journey to no where.