Railway Budget Springs A Surprise

Out of the two much-awaited major events, the railway budget has finally been presented in the parliament. A quick glance reveals that the Indian Railways’ kitty is going to get fuller with the increase in tariff rates. This has been done after a long gap of ten years. The increase in freight rates with effect from March 6, 2012 is expected to fetch the Ministry of Railways close to Rs 15,000 crore. There are other major announcements which include the three ambitious projects of developing rail corridors between various states for the movement of passengers and freight.

The logistics sector too will stand to benefit due to the proposal of allocating more wagons and rakes this year. This year’s budget has also paid attention to issues such as modernisation, security at railway stations, installation of escalators, rakes with world-class interiors, e-ticketing, etc. Some of the announcements made during the budget presentation are given below:

• Private investment schemes for wagon leasing, sidings, private freight terminals, container train operations, rail connectivity projects being made more attractive to PPP partners.
• A logistics’ corporation to be set up for the development and management of the existing railway goods sheds and multi-modal logistics parks.
• MoU signed with the Government of Chhattisgarh to develop three rail corridors in the state for the movement of passengers and freight.
• 31 projects covering a length of more than 5,000 kms across ten states being executed with contribution from the state governments.
• Indian Railway Station Development Corporation to be set up to re-develop stations through the PPP model.
• Proposal to add 75 new express trains and 21 new passenger services, nine DEMU services and eight MEMU services.

Tariff Proposals

While the Indian Railways has brought into effect a hike in tariff for all the classes on the suburban route, Railways Minister Dinesh Trivedi has said that this is not very steep and will not impact the passengers to any great extent. The details of the hike are:

• Passenger fare for the second-class has been increased by 3 paise per km.
• The increase in fare for suburban second-class passengers travelling for up to 35 kms will be Rs 2.
• For mail/express second-class the tariff has been hiked by 5 paise per km and by 10 paise per km for the sleeper class. For second-class mail/express passengers travelling a distance of up to 375 kms, the addition to the fare will be Rs 12. The increase in fare for those undertaking a journey of up to 750 kms by sleeper-class on a mail/express train is Rs 40.
• Fares have also been increased for AC chair cars with a hike of 15 paise per km for AC 3-Tier, 15 paise per km for AC 2-Tier and 30 paise per km for AC coaches. An AC 3-Tier passenger travelling a distance of 530 kms will be required to pay an additional Rs 57. The increase for AC 2-Tier and AC I passenger travelling over this distance will be Rs 84 and Rs 163 respectively.
• The price of platform tickets has been raised from Rs 2 to Rs 5.

The implication of the railway budget is reflected in the share price movement of the railway-related companies, as indicated in the table below.

The shares of Kalindee Rail Nirman (Engineers) slumped by 6.11 per cent to Rs 104.85 while those of wagon maker Texmaco Rail and Engineering plunged by 6.11 per cent to Rs 66.60 on the BSE. Titagarh Wagons was down by 4.25 per cent while Gateway Distriparks fell by 0.03 per cent. Any announcement to boost container traffic is a positive factor for companies like Gateway Distripark and Container Corporation.

However, Bharat Earth Movers (BEML) closed with a modest gain of 0.90 per cent. Kernex Microsystems, the only company in the country which makes anti-collision devices (ACDs), slipped by 5.19 per cent since there was no reference to ACDs in the budget. Considering the performances of the scrips over the last one week, the budget seems to have come below the market expectations. However, the railway minister has allocated Rs 18,193 crore - 30 per cent of the annual plan - for coaches, wagons and engines. This will work to the advantage of companies engaged in this sphere.

In conclusion we feel that the railway budget has come as a surprise since a hike in tariff was least expected. Also, the hike has come at a time when the ruling government was expected to present a more populist budget after losing the election in UP and elsewhere.