Budget 2021: Railways Get An Investment Boost
Passengers wait as a train arrives at a station in Bengaluru. (Photographer: Sanjit Das/Bloomberg)

Budget 2021: Railways Get An Investment Boost

BloombergQuintOpinion

The investment deficit of the Indian Railways has ended. This financial year has seen the highest investment so far at Rs 2.4 lakh crore. Of this, the budgetary support was a little over a trillion rupees. Retained earnings and borrowing contributed Rs 1.32 lakh crore.

Next fiscal year, Rs 2.15 lakh crore is expected to be invested. The budget contribution will remain almost the same at Rs 1.07 lakh crore. The Indian Railway Finance Corp. will pitch in with Rs 70,000 crore. The dedicated freight corridors have been provided nearly Rs 20,000 crore, of which 80% will be budgetary support. Much is expected from public-private partnerships. They are expected to contribute Rs 24,000 crore.

Similar expectations last year were belied. They brought in just 17% of the target, at Rs 4,186 crore.

Capex Push

Capital expenditure has seen a ramp-up under the National Democratic Alliance government. In 2014-15, it was nearly Rs 66,000 crore. The following year, it rose to Rs 1 lakh crore. That figure held more or less for the next two years, after which there were significant increases.

Rather than spread money thinly, 146 projects were identified as crucial from the point of view of freight earnings. They were prioritised and provided sufficient funds for completion.

The focus is on projects that are needed for operational efficiency and enhancement of network capacity. A standard contacting document was adopted.

The national rail policy whose draft was published in December for comments from the public intends to raise the share of railways in freight traffic to 40% by 2024 by installing multiple tracks on dense routes and electrifying the entire network. Two-thirds of the network was electrified by November 2020 and the rest will be done by 2023. The Railways expect to save Rs 14,500 crore in fuel costs every year as a result. Electrification, it says, will make it zero-carbon by 2030. Unless the dependence on coal for generating electricity reduces and the share of renewables increases, this may not be possible.

Freight-Passenger Balance

Freight earnings this year were impacted by disruptions caused by the pandemic. They are nearly Rs 19,000 crore less than budgeted. But the road sector was impacted more, so some of the traffic moved to the railways which could run more and faster freight trains as the movement of passengers was curtailed. Time-tabled parcel services were launched to provide reliable services to courier services and e-commerce companies. The speed of freight trains has increased from 24 kilometres per hour to 46 km/h.

Freight earnings at Rs 1.13 lakh crore were higher than the previous year, but could not make up for the contraction in passenger earnings which declined from about Rs 50,000 crore in 2019-20 to Rs 15,000 crore in FY21.

Overall earnings were Rs 30,000 crore less than in the previous year. Total expenditure exceeded earnings and the government had to bail the Railways out with a special loan.

The Next Growth Driver

The Finance Minister said the dedicated freight corridors will be commissioned by June 2022. This should increase the speed of freight trains to an average of 70 km/h. It will be possible to run long, 1.5-km trains, of 13,000 tonnes and double-stack container trains. The lower cost of transportation and reliable delivery should force a shift in freight from roads to railways.

Once the freight corridors are commissioned, spare capacity will be available on the existing routes. In anticipation, the Railways invited expressions of interest for running passenger trains on 12 clusters. In October 2020, it received 120 applications from 15 firms, including Welspun Enterprises Ltd., Gateway Rail Freight Ltd., L&T Infrastructure Development Projects Ltd., Indian Railway Catering and Tourism Corp., GMR Highways Ltd., and Bharat Heavy Electricals Ltd.

Organisational Reform

During the year, the Railway Board was recast along functional lines. The chairman was designated as the CEO. The members were renamed as Member (signalling and telecom), Member (infrastructure) in charge of tracks and land, Member (operations and business development), and Member (traction and rolling stock). The financial commissioner was made Member (Finance). The Rakesh Mohan committee had recommended this 20 years ago. Hopefully, a corporate structure will be adopted. Staff policies will also have to change. Promotion should be on the basis of performance and not just seniority. Outside talent should be inducted into the higher posts.

The Finance Minister made no mention of a rail regulator that will be necessary to provide comfort to private operators. The accounting system needs to be changed from the cash system to an accrual system. The status of station redevelopment was not conveyed. Overall, the Railway Budget seems to be on track.

Vivian Fernandes is a Delhi-based journalist who has tracked Indian Railways for more than 20 years. He is also Consulting Editor at Smart Indian Agriculture.

The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.

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