Railway Budget - 2015-16 ::ICICI Securities, report link

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Mission-mode approach for holistic, selfsustained development of Railways With focus on the common man, putting speed, scale, service & safety et al on one track, the Rail Minister presented the Rail Budget 2015-16. Reminiscent of the previous Budget, the emphasis was on transforming the Indian Railways (IR) as an organisation by proposing to separate policy and operational functions of the Railway board. The Budget primarily focused on improving passenger amenities by providing 11 major thrust areas. Keeping fiscal discipline in mind, the Railway Minister stayed away from announcing new trains and instead stressed on improvement of current capacity by gauge conversion, doubling, tripling and electrification. Further, adopting a medium-term perspective, the Budget laid down a Five Year action plan that will encourage FDI and public private partnership to finance new investments. The Budget clearly indicated that the vast land assets will be monetised with development and creating capacity addition as its agenda. With improved capacity utilisation and higher efficiency, the Rail Minister has targeted an operating ratio of 88.5% for FY16. The agenda of the Budget stayed on creating a conducive environment for promoting higher investments through extra budgetary resources with measures to accelerate internal revenue generation through operational efficiency. With thrust on development, the Rail Minister sought cooperation from the state government in planning and execution of rail projects. Build bit by bit – Vision 2030 to follow Five year action plan The Budget has set medium-term (Five Year) and long-term (Vision 2030) objectives to enhance capacity and transform the Indian Railways to convene the country’s social and economic aspirations. Over the next five years, the Rail Minister has spelled out four goals to transform the current state of IR. This includes: 1. Improving passenger amenities by providing facilities like cleanliness, hygiene and enhancing speed of trains 2. Secondly, emphasis on accident free and safe travel 3. Further, thrust is being laid on modernising and enhancing the current infrastructure to increase passenger and freight carrying capacity 4. Finally, endeavour would be made on making IR self sufficient by tighter cost control measures & better discipline in project selection and execution. Also, focus will be on improving internal revenue generation and measures to increase private partnership To achieve these goals, railways has proposed an investment plan of | 8,56,000 crore for medium-term. This comprises an outlay right from decongestion in heavy traffic segments to network expansion, from safety to enhancing the rolling stock. Additionally, this includes Northeastern and Kashmir connectivity projects and pan-India setting up of high-speed train corridors. The following will be key enablers of the transformation:- 1. The government has adopted a two-phased revival strategy, of which, the first phase is a Five Year Plan that will focus on immediate doable aspects. These include enhancing the passenger experience, electrification, doubling and tripling of existing lines. The second phase will be a successor of Vision 2020 plan “Vision 2030” to form a self-sustainable and measurable refurbishment of IR 2. The Rail Minister has sought cooperation of state governments and development organisations to facilitate the transformation. It will include formation of special purpose vehicles (SPVs) with all states to undertake specific railway projects in the states concerned. Corporate houses and MPs of states have been requested to invest in improving passenger amenities through CSR and MPLAD funds 3. Execution of the medium term plan will require | 850000 crore for which funding would be sourced from various multilateral development banks and pension funds. The Rail Minister is banking on funds from insurance companies and pension funds as their payouts are long term. These funds will enable Railways to optimally match their receivables and payouts 4. To achieve the operating ratio of 88.5% and bring in operating competence various initiatives like enterprise resource planning (ERP), leveraging technology and decentralisation will be undertaken Some focal points of the Five Year Plan are:- ƒ Currently, Railways has an annual capacity to carry 8400 million passengers i.e. ~23 million passengers per day, which will be upgraded to a capacity of 30 million per day ƒ With 1050.2 million tonnes (MT) of cargo in FY14 and expected hauling of 1101.25 MT in the next fiscal, railways aspires to be the largest freight carrier in the world. The target is to increase the freight carrying capacity to 1500 MT by FY19 ƒ In the past 10 years, a mere 3738 km track was laid. However, doubling of tracks was 5050 km. The target for the same was to increase the track length by 20% to 138000 km. Further, it sanctioned 77 projects covering 9400 km of doubling/tripling/quadrupling ƒ “Train sets” that are similar to bullet train are expected to run within next two years. Further, the Railway Minister envisages running a bullet train along the Mumbai-Ahmedabad corridor ƒ The Budget affirmed a ramp up of semi-high speed train (160- 200 kmph), over the nine railway corridors. This will include enhancing the standard of rolling stock, upgradation and monitoring of tracks ƒ The Budget appropriated a sum of | 6581 crore to eliminate 3438 unmanned level crossings and construct 970 railway-underbridges and railway-over-bridges (RUB/RoBs). Further, IR plans to implement ultra sonic fault detection system to detect rail and weld fractures Focus based approach to bring railways closer to people The Budget has clearly laid higher emphasis on enhancing the travelling experience of the passenger. For improvement the quality of travel, the Rail Minister has laid down 11 major guidelines, which can be implemented in the near term. In order to increase passenger revenue, railways has realised the importance of cleanliness and hygiene besides better ticketing and catering facilities. Consequently, to improve these facilities, the budgetary allotment was increased 67%. Some key thrust areas for the same are:- ƒ Improving cleanliness by recuperating the current on board housekeeping scheme (OBHS) and streamlining contract awarding methods and increase scope of disposable garbage. Also, improving the bedrolls quality and design for an enhanced experience ƒ Building new toilets at 650 stations. Further, green initiatives in terms of replacing existing toilets with 17,000 bio-toilets by tapping renewable energy through solar and wind power plants
ƒ Focus on improving ticketing facilities to reduce ticket less travellers and improve catering services by introducing ecatering and water vending machines to provide quality in catering services to passengers ƒ IT initiatives like hand held terminals for ticket examiners (TTEs), SMS alerts, digital charting, which will lead to paperless travelling. Railways display network at ~2000 stations to be introduced for real time information about train schedule. Additionally, it extended the Wi-Fi facility to B category stations ƒ In addition to the above, government initiatives like higher surveillance & on board entertainment are expected to go down well with masses. Also, it has introduced air-conditioned EMU on Mumbai suburban section. Further, capacity will be augmented by conversion of 24 coach trains to 26 coaches Capacity augmentation with renewed vigour To realise the aforementioned objectives the government needs to step up the capacity and connectivity to mobilise resources most efficiently. In this context, the Budget spells out certain guidelines like: ƒ To decongest the network, fast track 7000 km of double, third, fourth lines and commission 1200 km in 2015-16 at an investment of | 8686 crore. Further, it has sanctioned 77 projects covering 9,400 km of doubling, tripling, quadrupling works along with their electrification allocating a total amount of | 96182 crore. An additional outlay of | 2374 crore is allocated for debottlenecking existing sections as also electrification coverage increased from 462 route km to 6608 route km ƒ Civil contracts of 750 km and 1300 km system contracts to be announced for the two dedicated freight corridors ƒ Foreign direct investment (FDI) in railways and private participation in rail based infra are the biggest extra-budgetary support, railway is significantly striving for ƒ To increase freight revenues and provide multi-modal logistics the government has set up Transport Logistics Corporation of India. This will undertake end-to-end logistics solutions ƒ Finally, as IR moves towards digitising of GIS mapping of land assets, resource mobilisation using PPP model in setting up of railway related business and commercial development on railway land is also being explored On path to financial consolidation Indian Railways has suffered from years of low investment as populist policies of subsidising passenger traffic choked the resources generation capability. In addition, the time overruns and cost escalations in ongoing projects have further compounded the problem. Consequently, the operating ratio of railways continued to suffer. However, with tighter cost control measures and improved operations, the 2014-15 revised estimates for operating ratio stood at 91.8% against budgeted estimate of 92.5% and dismal operating ratio of 93.6% in FY14. Going ahead, the ratio has been budgeted at 88.5% for FY15-16. As the existing government has a Herculean task of resurrecting the finance as well as operation of the railways, in the Budget a roadmap has been provided towards improving internal revenue and making railways self-sustaining. The numbers announced in the Budget also reveal the same and call for better execution of existing projects and avenues to generate revenue.
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