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    Why D-Street didn’t like Rail Budget: Because it shows Modi govt is on a diet

    Synopsis

    The usual stuff was missing in the Rail Budget. Instead, the focus was on efficient use of the available resources to create capital assets and build capacity.

    ET Online
    Yes, you read it right: the Modi government is on a diet.

    First sign, the usual stuff such as new trains, new rail routes and new stations were missing in Suresh Prabhu's second Rail Budget. Instead, the focus was on efficient use of the available resources to create capital assets, build capacity and complete the huge backlog of previously announced projects.

    Secondly, Railway Minister Suresh Prabhu clearly spelt out a slew of measures to save his precious resources, especially his outgo on fuel. He wants to save Rs 3,000 crore by rationalising power cost, which he plans to do by procuring power directly from power companies and power grids and another Rs 1,500 crore on diesel through direct procurement.

    Thirdly, besides optimising costs, Prabhu is looking to tap every possible new avenue to raise resources: a holding company to monetise railway assets, leasing of general wagons, raising market share in freight, tapping more ad revenues, and what not! He also claimed savings of Rs 8,720 crore from 2015-16, which he said will help him neutralise most of the revenue shortfall.

    Fourthly, not a single word on bullet trains – Prime Minister Narendra Modi's pet project. Yes, some work is on and it has not gone into the cold storage, but Prabhu surely doesn't have the resources to take it forward, at least that’s the case this year.

    And because Suresh Prabhu avoided populist measures like too many new trains and new railway lines, he also avoided the bitter pill of rationalising passenger fares. The forthcoming elections in 10 states obviously tied his hands. He also didn't announce any freight hike, but said the Railways plans to review its freight policy to increase revenues.

    Prabhu explained his Budget strategy in three words – Nav Arjan (new revenues), Nav Manak (new norms) and Nav Sanrachna (new structures) – in order to overcome the challenges he faces in trying to reorganise, restructure and rejuvenate Indian Railways.

    The focus of the Rail Budget was on fruit-bearing capital expenditure, which he has doubled to Rs 1.21 lakh crore for FY17 from a five-year average of Rs 48,100 crore during 2009-14, when it grew at a rate of 8 per cent per annum.

    So, there is 50 per cent rise in targets for electrification of rail routes to 2,000 km, 30 per cent rise in the target for commissioning of BG tracks to 2,800 km, besides the announcement of three new freight corridors, more coaches, more rolling stock, more engines and wagons and upgradation of railway stations and passenger amenities.

    In all, Prabhu has set aside Rs 92,700 crore for 44 new projects in FY17. The bottomline, the Rail Minister is focusing on renewal of the Railways and is trying to create contemporary standards to facilitate that.

    Unfortunately, he looks starved of resources. Has the Finance Minister asked him to slow down this year to reduce the pressure on his own resources as he faces a daunting task of meeting a tall fiscal deficit target? Very much possible. The Budgetary support for the Railways this year has been pegged at Rs 40,000 crore, same as last year. Finance Minister Arun Jaitley is said to have cut the Rs 40,000 crore of cash promised to railways in his last budget by one-fifth after the latter failed to spend money in time. Some reports said the Railways had sought Rs 50,000 crore for 2016-17.

    So, Prabhu plans to monetise Railways' own resources – a tall, time-consuming target by any measure. He claims to have got a pledge from LIC to invest Rs 1.50 lakh crore in Railway projects on very attractive terms. He is tapping multilateral agencies for freight corridors and bullet train projects. And he is seeking to raise revenue by bringing in efficiency to the existing setup: electronic ticketing, unreserved train services, better amenities – all good, futuristic steps, but may not bring him the money when he needs it and at the pace he needs it.

    Plus, he faces the biggest risk on the freight front, and he acknowledges it.

    He says the operating ratio, which shows the Railways’ ability to generate revenue, will move up to 92 next financial year. This was 90 this year against his target of 88.5. Now, that has been attributed to the slowdown in the manufacturing sector, which surely led to a drop in freight movement.

    In the process, Prabhu missed his revenue target for FY16, and nobody is now ready to buy his new target of Rs 1,82,000 crore set for the new financial year. He plans to borrow Rs 20,000 crore this year.

    Prabhu plans joint ventures with states, a new PPP framework to implement many of his projects -- again not tried and tested before. He also wants speed, 19 km rail track commissioning per day, award of all PPP projects above Rs 300 crore by 2018 and fast-tracking of the bidding process for long-pending modernisation and redevelopment projects. He claimed to have already awarded contracts worth Rs 24,000 crore for the dedicated railway freight corridor.

    So the content is good and futuristic, with renewal taking precedence over populism. He focused on needs: three long-distance services for passengers; overnight double-decker services on busy roads, 33 per cent quota for women passengers.

    So, why did the stock market not like it? Why did the Railway-linked stocks crash despite so many new project announcements? That was because investors failed to see new contracts, new demand for the companies catering to this sector in the immediate term. That also has to do with the fact that the Railway Minister has pegged his resource mobilisation effort on newer ways, which do not promise immediate delivery.

    After all, contrarian ways have fewer takers in the market.



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    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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