Suresh Prabhu rides in on a bullet train

Feb 27, 2015

- By Vivek Kaul

Vivek Kaul
Having grown up in erstwhile Bihar in the 1990s, I have been a victim of the Lalu raj. And given this I have never been able to watch Lalu Prasad Yadav on television. It still causes a lot of pain. The moment he comes on, it's time to change the television channel.

And given that Lalu was the railways minister between 2004 and 2009, not surprisingly I lost the habit of watching the railway budget. Yesterday, after many years I saw the full railway budget and was impressed by the vision that the railway minister Suresh Prabhu had to offer.

Almost all railway budget speeches that I have heard (and read) till date are essentially an exercise in populism. Prabhu's budget speech on the other hand was like a vision document. He elucidated what is wrong with Indian Railways in a very clear way. Then he told us how he plans to go about fixing it. And finally he even told us how much money he would need in the process.

Interestingly, the ministry of railways also released a white paper yesterday, which should be read along with Prabhu's speech in order to fully appreciate what he was trying to communicate.

In 1950-51 the total running track of Indian Railways stood at 59,315 km. In 2013-14, the number stood at 89,987 km, an increase of 52%, over a period of more than sixty years.

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The freight carried by the railways in 1950-51 stood at 73 million tonnes. By 2013-14, this had gone up by 1344% to 1.05 billion tonnes. The total number of passenger kilometres had stood at 66,517 million kms. This has jumped by 1642% to 11,58,742 million kms.

What these data points clearly tell us is that there is tremendous pressure on infrastructure of the Indian Railways. As the white paper points out: "The above growth pattern has resulted in large scale congestion of the system."

What this also tells us is that Indian Railways has suffered from chronic underinvestment over the years. As Prabhu said in his speech: "The chronic underinvestment in Railways...has led to congestion and over-utilization. As a consequence, capacity augmentation suffers, safety is challenged and the quality of service delivery declines, leading to poor morale, reduced efficiency, sub-optimal freight and passenger traffic, and fewer financial resources."

Also, over the years the amount of money that is spent on safety has basically amounted to peanuts (as can be seen from the following table).

Table 1: Financing-the-railway-plan
Source: White paper on Indian Railways : (Rs.in cr)

If anyone wants to know why travelling by Indian Railways is so unsafe, the above table provides the answer. In the last few years only 3% has gone to the Railway Safety Fund. "Investments in safety have also suffered on account of low internal generation of resources...Unmanned level crossings are a major area of concern apart from accidents that arise on other accounts," the white paper points out.

Long story short-Indian Railways needs a lot of investments to get its infrastructure up and running again. And that is precisely what Prabhu plans to do over the next few years and set the system right. As he said in his speech: "The intention...is to...ensure appropriate investments which can de-congest the system and enhance line-capacity."

Prabhu has envisaged an investment of Rs 8.5 lakh crore over the next five years (as can be seen from the following table).

Proposed investment plan 2015 2019
Source: Railway Minister's budget speech

It is interesting to see that the railways plans to spend Rs 1,25,000 crore on safety over the next five years. This is 18 times more than the money that has been spent on safety between 2009-10 and 2013-14.

Also, by spending close to Rs 2,00,000 crore on network decongestion and Rs 1,93,000 crore on network expansion, the railways plans to increase the daily passenger carrying capacity from 21 million to 30 million. It plans to increase the annual freight carrying capacity from around 1.05 billion tonnes currently to 1.5 billion tonnes by 2019.

It need not be said that this is a step in the right direction. Further, as Prabhu said in his speech: "Investment in the Railways will have a large multiplier effect on the rest of the economy and will create more jobs in the economy."

The question that remains here is that where will all this money come from? The easiest way to finance this expenditure for the Indian Railways would have been to receive higher budgetary support from the government. But that would mean a higher expenditure for the government and in turn a higher fiscal deficit. Fiscal deficit is the difference between what a government earns and what it spends.

Also, given the scale of the investment required, depending just on the government would be a recipe for disaster. As Prabhu said in the budget speech: "the scale of our investment needs is such that it will require us to seek multiple sources of funding."

Prabhu wants to tap multilateral development banks and pension funds for money. "[They] have expressed keen interest in financing new investments. Their time horizon is aligned with ours. They seek sources of predictable and recurring revenue, which we can provide through the issuance of long-term debt instruments to fund revenue generating railway projects," he said.

Interestingly, the white paper goes into more detail regarding how the railways plans to finance this huge expenditure. One of the things talked about is "involving customers in building rail lines especially for ports and mines." "Prior to 2012; Rail connectivity to ports of Pipavav, Mundra, Mangalore, Kandla, Dahej, Krishnapatnam and Dhamra has been strengthened bringing private investments in rail sector."

Another interesting mode of finance talked about is the commercial utilization of surplus railway land. "So far, 102 sites measuring 916 hectare of Railway land has been entrusted to RLDA for commercial development. Out of 102 sites, 62 sites totalling 597 hectares are amenable for commercial development," the white paper points out.

This is an interesting development. But I would have been happier if the railways just sold off this land instead of trying to become a landlord.

To, conclude for first the time in close to a decade a lot of thought has gone into the making of the railway budget. And that is indeed credible. My only worry is that Prabhu did not offer much clarity on how he plans to finance the entire expenditure on infrastructure.

Also, anyone giving loans to the Indian Railways will do it because the Indian government backs it. Hence, even though the debt may not directly show on the books of the Indian government, it will ultimately be a liability of the Indian government. I hope Prabhu and the Indian Railways come up with more out of the box ideas in the days to come to finance this huge expenditure.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

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2 Responses to "Suresh Prabhu rides in on a bullet train"

RANJAN DATTA

Mar 2, 2015

From which is the effective date for 120 Days Advance Rlaiway Reservation Booking ?

Like (4)

Ramani

Mar 1, 2015

Commendable Budget. Keep up the good work Mr.Prabhu Railway Minister.

Like (4)
  
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