Railways Budget: More funds eyed for turnaround

Indian Railways: One of the world’s largest railways network and arguably the lifeline of the country hopes to receive a new leash of life when Suresh Prabhu presents his 2nd Rail Budget on Thursday, 12 noon.

Indian Rail by estimates roughly ferries 23 million people every day, but years of under investment and overburdened rail networks has led to its decline over the period of time, which has been reflective on its operating efficiency, which stands at 91.3 per cent. In simple language Operating Ratio indicates how much railway spends to earn a rupee. An Operating Ratio of 91.3 per cent means that railway is spending 91.3 paisa to earn 100 paisa (i.e. one rupee). This shows the persistent pain which has been plaguing the railways for years.

Indian Railways will have to depend on more government support and borrowing to fix their finances in this budget, with government reluctant to unveil steep fare hikes ahead of key state elections in the coming year.

NDA government unveiled a USD 137 billion, 5-year modernisation plan last year to overhaul its rail network and boost growth in Asia's third-largest economy, but a slump in passenger and freight revenues this year is straining its finances. Raising of freight has also not helped the cause, as railways have lost their revenues to road transport over the years. Thus any more rise in freight can be detrimental to its future, however industrial slowdown has also affected it negatively.

Indian Railways have also been facing stiff competition from airline companies due to cheaper fares, courtesy to low oil prices which have brought down fares substantially and moved passengers towards airlines. Wealthier travelers, whose higher fares are a major source of revenue, have hurt the railways' earnings along with a fall in demand for major goods like coal and cement. 

A proposed 24 per cent hike in the salaries of 2.6 million employees and pensioners, meanwhile, will land the railways with a wage bill of about USD 4.7 billion; which will further put pressure on railway finances for which the finance ministry has to make special provision given the state of railway finances. Axis Capital estimates the railways would have earned 1.3 trillion rupees (USD19 billion) each year if they had raised fares 5 to 6 per cent annually over the past decade, against today's 220-billion-rupee loss from passenger services.

In order to fuel its modernization and expansion plans railways have to come up with innovative ways to fund its growth. One way by which they can go forward is by listing independent profit making units like IRCTC which can help raise funds. Another source of revenue could be through land parcels, or lease rent.

Railways also need to work with the private sector closely in order to share its burden and become efficient. Taking private sectors help in railway station modernisation could also be of benefit to the state run railway.

For fund raising they can also forge tie ups with LIC and international agencies, which will be the mainstay for the government to raise funds for the railways. Government should try to raise funds through mechanisms other than raising ticket prices. So tying up of funding through LIC and through international agencies and multilateral agencies should be the core strategy of the government.