Rail Budget 2016 - Vision on Track, Execution is Key ::Edel

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->

The Railway Budget is meant to set the tone for the Union Budget. Rail Minister Suresh Prabhu’s Budget set a positive tone, indeed. With a focus on long-term infrastructure, cost optimization, revenue generation and improvement in customer services, the minister has indicated the right intent. Implementation, however, remains key, especially with the rise in wage expenditure as per the 7th Pay Commission. All in all, it was a realistic Budget considering the financial constraints and the focus given to unconventional sources of funding a revenue generation.

Capital Expenditure: Constructive spending is the need of the day

The importance of capital expenditure extends to the Railways too. The Rail Minister announced a 21% increase in the estimate of planned capital expenditure for the fiscal year 2016-17. For the year 2016-17, the capital plan has been pegged at INR 1.21 lakh crore.

This may seem like a large figure compared to the average spending of INR 48,100 crore over 2009- 14. However, it could be achievable considering that the Railways spent nearly double the average expenditure in FY16. This is a quantum leap from the UPA-2 regimen when average outlay was INR 42,000 crore.

Expense control, innovative revenues: Better use of Railway finances

When it comes to the Railways’ finances, the main measure looked at is the ‘Operational Ratio’. Railways failed to meet its target of 88.5% in the current fiscal. The Ratio could now come in at 90% in FY16. Despite the failure to meet the target, the ratio is an improvement over last year’s 91.3%. The slightly worrying figure is the proposed Operational Ratio of 92% for fiscal year 2016-17. This means the Railways will spend more to earn every rupee.

However, the fine print paints a better picture. The higher ratio in the coming year is because of higher wage expenses due to the 7th Pay Commission, which is INR 20,000 crore for FY17. To make up for this increase in wage expenses, the Railways proposes to undertake extensive cost optimization and revenue enhancement. This way, it expects to limit its rise in Ordinary Working Expenses to just 11.6%. This is paltry in comparison with the rise of 32.5% in expenses after the 6th Pay Commission in 2008-09.

In FY16 too, the Railways managed to save INR 8,720 crore by cutting costs by reducing the cost of power procured for traction by signing long-term agreements, brought down inventory carrying costs and launched austerity drives. This helped it make up for the shortfall in revenue collection.

Even on the whole, the Railways curbed its growth in expenditure at 8% in FY16, whereas the revenues grew 10% YoY to INR 1,84,820 crore.

LINK

https://www.edelweiss.in/research/Rail-Budget-2016--Vision-on-Track,-Execution-is-Key/10007082.html