Tuesday, February 26, 2013

Well done Pawan Kumar Bansal. The Railways makeover begins….

How often does one get to read a newspaper headline that praises a minister (this is still impossible on TV!)? A headline like “Bansalonomics: High on substance, low on flourish” as in the TOI today. Or “Bansal scores with berth of a new idea”. Or how often do we hear a minister admitting “I cant afford to be impractical”. That too just a year before elections? These headlines capture the essence of the difference between this year’s Railway budget and the ones seen in the previous years. It’s clearly a reform oriented budget as the Indian Express headlines “Reform express rolls…”. The response from the BJP (More Rae Bareli than Railways) was on predictable lines (they just had to choose one from amongst a dozen or more they must have pre-fabricated!) and the amplification of this BJP line by some sensation-building TV news channels also was predictable.

It’s not as if Bansal hasn’t made the standard announcements that accompany all railway budgets. There are a lot more new trains (67 express; 26 passenger trains), a lot more route extensions (57 trains) and a lot more increase in frequency of trains (24 trains). There are also a number of new-generation announcements like “wifi in trains” and “lounges at stations” and “escalators at stations” and “ISO certification of food” and so on. There is also a big dose of populism (Rs 1.5 lac new jobs). This much is expected from any Railway minister. What is completely new though is that these announcements have been matched with plans for revenue enhancement. In the past – especially under that economically illiterate politician, Mamata Banerjee – revenue enhancement was not considered to be the job of the Railway minister. The excess spending plans were to be funded by the Finance Minister.

There are a few most important highlights of Bansal’s maiden budget:

  1. There is a definitive plan revenue enhancement. Along with the passenger fare hike taken last month, the freight hike of 6% or so and increases in certain other items should give the Railways an additional Rs 11,300 crores in revenues as mentioned in the TOI. This and this alone is responsible for the “surplus” (operating profit in simple language) of Rs 13,147 crores budgeted. Under the Congress (or rather, “not under” TMC), the Railways have pulled back in the last six months, cutting spends by some Rs 1000 crores and bringing operating ratio (the reverse of operating profit) below 90% of revenues from the 95% in Mamata’s last year as minister. The revenue enhancements will only improve that ratio marginally next year, taking it down to 87%, a far cry from the 75% odd number that should be the target. So the reforms have just begun. There is still a long way to go.
  1. There is a determination and confidence to increase tariffs. I cannot understand why our politicians always crib about rising tariffs. Is there any item whose price does not increase by 5-10% every year? Don’s salaries, MSPs (paid to farmers), PF interest rates (8.5%), NREGA payouts (linked to inflation), business profits (10-20%) all increase proportionately or more? A 5-10% increase is considered “reasonable”; anything more hurts. If only the Railways had taken a 5% increase every year since 2002-3, ticket prices today would have been double of what they are today. At least the process of corrections has started. In contrast, the biggest news in Mamata’s budget of 2 years back was “No increase in passenger and freight rates”.
  1. What I find interesting in the budget is that freight prices have been linked to fuel prices and those should now change twice a year. It’s a smart move, for it helps offset the impact of a depreciating rupee or rising global crude prices. The good news is that even a 10% increase in freight prices would only cause a minor blip in inflation (estimated at 0.03 to 0.05% by Kotak Securities).
  1. The other highlight of the budget of course is the stress on improving facilities and safety. A full 16% of the budgetary spends have been earmarked for enhanced passenger amenities (better toilets, cleaner stations). A lot more is being spent on safety. So while all ministers in the past have promised “anti-collision devices” and “eliminating manned level crossings”, this time it looks like the announcement is being backed up with a funding plan.
  1. There are also several new initiatives. The push for PPP (Public Private Partnership) is welcome, and if the minister has his way, we should see Rs 1 lac of PPP projects in the next five years with Rs 6000 crores this year itself. The launch of a “world class” experience in the form of Anubhuti coaches sounds interesting. Internet connectivity, sms alerts etc are good because people have got used to getting such facilities from air and bus operators.
What did the BJP have to say about all this? Expecting anything constructive of course is impossible. But the party’s creative “copywriters” went into overdrive and found something catchy as always. This is a Rae Bareli budget, not a Railways budget apparently (I don’t think the BJP cribbed when Mamata Banerjee, Laloo Yadav and Nitish Kumar doled out most of the projects to the East). What was there in the budget that helped earn the BJP’s ire? That a “wheels factory” has been proposed in Rae Bareli. Where else would a wheels factory be if not inside a “coach factory”???! And this is one announcement amongst a whole slew of new investment plans including in Bangalore, Bilaspur and other cities ruled by opposition parties. But for the BJP, Rae Bareli is impossible to resist, considering it is Sonia Gandhi’s constituency! I think much of the BJP’s creativity gets expended in such inane responses and there is very little left with it to respond intelligently.

The real truth is that the Railways budget is responsible and reforms oriented. Going forward, the main coalition party (Congress or BJP) should keep Railways with itself, so that petty state-level issues don’t dominate this huge budget exercise. Bansal has done well….now all eyes are on Chidambaram.

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