Citi: Rail Budget – Rates Unchanged, Investment Outlays Higher

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India Macro Flash
 Rail Budget – Rates Unchanged, Investment Outlays Higher 
 Rail Budget – Key Takeaways include:  (1) Tariffs – both passenger and
freight unchanged, (2) Investment outlays raised to an all-time high of Rs576bn
to be largely financed by market borrowings (Rs206bn), budgetary support
(Rs200bn) and internal resources (Rs142bn), (3) Implementation of the 6
th
 Pay
Commission and losses due to disruption of services/ban on iron-ore exports
results in operating ratio remaining over 90% from a low of 75.9 % seen in
FY08 (i.e to earn Rs100 of revenue, the railways spent Rs92).  
 Rail Infrastructure – Some Progress, but Lower than budgeted:  The
Ministry added 700km of the targeted 1000km line addition in FY11. While this
is lower than budgeted, it is encouraging given that only 180km have been
added on an annual average basis so far. Moreover, the railways were able to
meet their 800km target for gauge conversion and 700km target for doubling of
lines. For FY12, the Ministry proposes to add ~1300kms (1000km for FY12 and
the balance from FY11). Other investment proposals, some of which appear to
be politically driven, include (1) Upgrade of Kolkata’s suburban system, (2)
Raising the wagon-procurement target from 16,500 in FY11 to 18,000 in FY12
and (3) Augmentation of diesel locomotive works capacity, (4) New passenger
terminals in Kerala, UP and West Bengal, (5) Other initiatives to ramp up
infrastructure include rail industrial parks, and a gas-based power plant.
 A pre-cursor for the General Budget…We hope not – While the investment
plans are encouraging, higher recourse to market borrowings, coupled with
possible state election-linked measures, are things we hope not to see in the
Union Budget due Monday – 28 Feb.