Rail Budget: Prabhu Does The Balancing Act

25/02/2016 7:01 PM IST | Updated 15/07/2016 8:26 AM IST
Hindustan Times via Getty Images
NEW DELHI, INDIA - FEBRUARY 25: Indian Railway Minister Suresh Prabhu arrives at Parliament for presenting the Railway Budget along with MOS Manoj Sinha, on February 25, 2016 in New Delhi, India. Talking to the reporters on this occasion, Prabhu said that the Rail Budget will cater to the needs of all satisfactorily as a lot of effort has gone into its preparation. (Photo by Mohd Zakir/Hindustan Times via Getty Images)

If there is one thing that touches the maximum number of Indian lives, it is the railways. Railway Minister Suresh Prabhu’s decision to leave passenger fares unchanged in his budget, aimed at pleasing the common man, has left many wondering on the impact it will have on an already strained balance sheet of the country’s largest employer.

Prime Minister Narendra Modi hailed the budget, saying it will play a key role in the country's rejuvenation by adding more jobs.

"Rail Budget showcases a vision to reorganise, restructure & rejuvenate Railways with new processes, structures, norms & sources of revenue," Modi said.

The Congress Party criticized the budget, saying that it has fallen short in all matters pertaining to the common man. The party went on to say that the budget was high on rhetoric and low on content.

Nationalist Congress Party likened the rail budget to ‘house-keeping’, referring to Prabhu’s proposal to include two-four Deen Dayalu coaches with plenty of mobile charging points and potable water in long distance trains for unreserved passengers. The railway minister also announced SMART coaches with more amenities including automatic doors, accessible dustbins and more mobile charging points.

The Railway Minister said that porters will be trained in soft skills and will be called ‘Sahayaks’ and not ‘Coolies’ hereon.

Though Prabhu announced the setting up of Common User Auto Rail Hub at Wallajahbad near Chennai, building a suburban network in Chennai and also the beautification of Nagapattinam Railway Station, Tamil Nadu Chief Minister J. Jayalalithaa said the railway minister failed to meet the expectations of Tamilians.

Congress leader Ashwani Kumar said the railway budget came as a rude shock on all parameters.

The minister also said that a special purpose vehicle for the Ahmedabad-Mumbai high speed corridor was registered this month. The entity, a joint venture between the Ministry of Railways and the governments of Gujarat and Maharashtra, has a paid-up capital of Rs 20,000 crore.

Prabhu added that the government plans to convert the Academy of Railways in Vadodara into a university.

According to Prabhu, the railways incurred a loss of Rs 30,000 crore in 2015-16 as passenger fares, despite consecutive hikes, continue to be subsidised at the cost of freight charges. Some attribute this to the prevailing conditions in the broader economy rather than a case of subsidised passenger fares eating into the revenues of railways.

“Though there have been slippages in the revenue target in the current fiscal, it has got more to do with the overall economic slowdown, more so in sectors like coal, steel and iron ore, which have been worst hit, but have been the major revenue sources for the railways,” industry body ASSOCHAM observed.

This strategy of using higher freight charges to subsidise the passenger fares has already seen the railways losing out on freight as improving road network has seen goods transport gradually move away from the railways. The Railways depends on its freights earnings for funding its capital investments.

“Subdued growth in revenues – both passenger and freight – presented a compelling reason for another increase in fares, but Prabhu didn’t give in to hiking fare as an easy solution to resources woes,” Tax, M&A and Risk Advisory firm BMR Advisors said.

However, the budget failed to pep up the mood on Dalal Street. The Street closely watches the rail budget for clues of what to expect from the finance minister’s budget. Shares of companies with exposure to railways ended the day lower.

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