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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 wellas 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 Ratiois 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 currentfiscal, 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 afterdepressing the accounts through lesser appropriation, lesser dividends. After all tmismanagement 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 PlanningCommission. 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 isintended 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 10,000crores 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

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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 hadgone 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 Ministers yesterday proves that the fact is otherwise. She visited all those places to reach out apolicy 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 toallow 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 aswell 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 Capitalmarket. 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 requiredliquidity 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 possiblescaling 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 Ministersstatement 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 Railways

are unaffected by this except in an indirect way such as leasing out city side developments, runningof 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 thebusiness ? 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 noteof 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 threedecades 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 infront 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 samemanner. As per the original target, DFC is supposed to be completed by 2011-2012 FY, where aswe cant 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 vettingand 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 factoris 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 Fridays 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 afresh 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

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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 reportbefore 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 thebudget 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 therequirement. 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 witha 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 atregular 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 ofcarelessness, one cant say any thing except that this is a journey to no where.