Sixth Pay Commission’s award to its serving and retired employees.

For all the impression of being a populist exercise, Ms Mamata Banerjee’s 2009-10 Rail Budget is actually a pretty practical response to the prevailing business environment in which the public sector transport behemoth is operating. Consider this. In 2008-09, the economic slowdown resulted in the Indian Railways’ (IR) freight loading falling short of its budgeted target of 850 million tonnes (mt) by 17 mt.

Simultaneously, it had to fork out an additional Rs 13,600 crore following the implementation of the Sixth Pay Commission’s award to its serving and retired employees. The current fiscal, too, will see an outgo of Rs 14,600 crore on this account.

This double whammy has severely dented the IR’s finances. After meeting all its expenses, including provisions towards dividend and statutory appropriations, the Railways will be left with an investible surplus of just Rs 8,631.04 crore during 2009-10 — as against Rs 19,972.43 crore in 2007-08.

Despite this setback, beyond any Rail Minister’s control, Ms Banerjee has not compromised on the Plan outlays. For the current fiscal, the total investment Plan has been pegged at an all-time-high of Rs 40,745 crore. This is not only higher than the Rs 36,336 crore of 2008-09, but even the Rs 30,145.34 crore of 2007-08, when the IR was in the pink of financial health!

This strategy of maintaining, or rather enhancing, capital investments, even in a downturn scenario, may reap dividends in the coming fiscals. By 2010-11, the arrears against the Sixth Pay Commission award would have been fully paid up. Also, by then, an economic recovery would have set in, reversing the present vicious cycle of soaring costs and sluggish revenues into a virtuous cycle for the IR.

Ms Banerjee’s focus now should be on ensuring that the budgeted capital outlays get spent, so that the stage is set for the Railways to capitalise on the better times ahead. But on the whole, one cannot doubt that the strategy laid out in the Rail Budget is both sound as well as bold (in most cases, the immediate response of firms to revenue pressures is a cut-back on capex).
Higher Plan size

How has Ms Banerjee managed to project a higher Plan size? Well, to an extent, the credit goes to the Finance Minister, Mr Pranab Mukherjee. Call it the Bengal connection, but the fact is that Mr Mukherjee has bestowed Ms Banerjee with an extra Rs 5,000 crore of support from the exchequer.

Budget support to the Railways’ Plan has been pegged at Rs 15,800 crore, which is more than the Rs 10,800 crore pledged in the Interim Budget for 2009-10. Mr Mukherjee has further helped Ms Banerjee’s cause by allowing the Indian Railway Finance Corporation (IRFC) to float Rs 5,000 crore worth of tax-free bonds this fiscal.

The tax-free bond facility to the IR’s fund-raising arm was withdrawn after 2003-04 by Mr Mukherjee predecessor, Mr P. Chidambaram. IRFC officials say that the renewed permission to issue tax-free bonds would enable a 100 to 150 basis point reduction in its cost of funds. That, in turn, has given the Railways the leeway to target borrowings of Rs 9,170 crore in the current fiscal, more than the Rs 7,190 crore raised in 2008-09.

IRFC raises funds for IR at close to sovereign debt cost levels and a margin of 50-70 basis points. The higher budget support of Rs 15,800 crore, along with IRFC’s borrowings of Rs 9,170 crore, together will help fund over 61 per cent of the IR’s budgeted Plan of Rs 40,745 crore this fiscal.
Big outlays

It is only the balance of Rs 15,775 crore that the Railways will have to raise from internal and other sources. Ms Banerjee has clearly tied up the funds for her ambitious Plan; what remains to be seen is whether the investments actually happen on the ground. Of the total Rs 40,745-crore Plan, Ms Banerjee has allocated Rs 12,393 crore to rolling stock acquisition. The IR’s procurement plans include 18,000 wagons, 3,041 conventional coaches, 144 LHB coaches, 855 electric multiple units, 444 DEMUs and MEMUs, 250 electric locomotives and 250 diesel locomotives.

The other big outlay is Rs 5,135 crore towards track renewals. Ms Banerjee has also provided Rs 1,880 crore towards the dedicated freight corridor, which is Rs 1,100 crore more than what was allocated last fiscal.

On the services front, instead of making mega announcements, Ms Banerjee has tried widening the number of stations where basic amenities and low-cost food will be made available.

She has also decided to experiment with some new services, like the 12 non-stop passenger trains (which will have operational halts but no commercial halts), three premium parcel services and premium services for container train operators with transit time guarantees.

The premium services will be priced higher, though the exact levels have not yet been finalised. “The exact fares have not yet been decided,” Mr S. S. Khurana, Chairman, Railway Board, said when contacted.

The Minister has not stressed big-ticket projects much, and has qualified her eastern industrial corridor plan by suggesting a “robust business plan”. The lack of a valid business plan for both the eastern and western corridors is perceived as one of the reasons for the delay in the projects.

Related Stories:
Rail Budget: Long on passengers and short on freight
Is Mamata plan more realistic than Lalu’s?