Moratorium on new trains will be counter-productive, and railways should look at reduction of freight charges.
With the Railway Budget out today, Umesh Choudhary, vice chairman, Titagarh Wagons, talking to CNBC-TV18, said that the company’s margins on wagon orders have taken a hit. While admitting that the delay in wagon orders for FY13 has impacted its financials, a company official admitted that further delay in railway orders was expected in FY13. While saying that moratorium on new trains will be counter-productive, he said that railways should look at reduction of freight charges.
Here is the edited transcript of Choudhary's interview with CNBC TV18
Q: I believe that wagon orders for FY13 have not been given out yet, and by your own company’s experience, your margins got hit quite hard this time. Do you expect there will be fresh orders and is it lucrative to bid for some of these Rail Budget orders?
A: I would not say they are extremely low, but yes, margins have taken a hit, and more so because of the delay in finalisation of the orders last year. FY13 orders have not been placed as yet. I can categorise expectations from the Budget into three parts - one is the short-term current year’s off take, that is the rolling stock Budget.
What I am really expecting from the Budget are certain long-term policies, primarily enforcement of the previous policies, whether it is the Special Freight Train Operator Scheme (SFTO), Automobile Freight Train Operator Scheme (AFTO) or the container train operator scheme.
So also easing out and ironing out all the problems that people have been facing in those schemes and certain long-term measures. We all understand that the railways have not been going through a very good period of time. Fortunately because of the last fare and freight increase, the railways will be having some more cash to spend on long-term capacity enhancement.
At the end of the day, the quantum growth in traffic, if they move from 960 million tonne to 1,000 million tonne it is going to be a Hindu growth rate. That is neither going to help either the industry, the country or the railways.
Q: Why do you think these delays are happening? Your unexecuted order book is fairly significant as well. Do you have any clarity on when these orders might start and what kind of pricing they might come in, given the pressure on your margins?
A: The order book which we have is not significant, as it is from the other divisions. For the coach division we have got reasonable orders. We have got a fair bit of private wagon orders, but as far as the railways are concerned, everybody is running out of orders.
The tender got delayed because of a host of issues. There were certain litigations and lot of other stuff. We hope the tenders to be out within the next couple of weeks, but as far as margins are concerned, that is a market factor. So we will only know about what the margins are once the tenders open. The prices would be as good as the wisdom of the lowest bidder.
Q: The whole mood in New Delhi seems to be around curbing plan expenditure to ensure that the deficit next year is 4.8 percent. Is this the year where you would expect a very significant jump in outlay, which translates into big jump in orders for you?
A: We would not be very concerned about that. If the policies are given the right thrust there would be enough business from the private sector.
So, while the railways would continue to buy some quantity of wagon for their organic growth, today they have 32-33 percent of the market share. If the GDP grows at 6 percent, at worse they would require 6 percent additional fleet of 250,000 wagons. So 12,500 plus replacement, that is about 16,000-17,000 wagons really is inevitable for the railways. Growth can come from the private sector if these policies are ironed out.
Q: Organizations like the Associated Chambers of Commerce and Industry of India (ASSOCHAM) have recommended a two-year moratorium in terms of introduction of new trains. They are just talking about speeding up safety and security measures.
A: I do not know how far it would be practical to put a moratorium on introduction of new trains, because at the end of the day trains are not being introduced, whether it is passenger or freight. They are not being introduced for strictly commercial purposes only, and with passenger demand, I do not see that how moratorium in introduction of new trains or new freight wagons will really help the railways. In fact it will deepen the crisis.
A substantial part, about 80 percent of the railways cost if fixed. The only way the railways can come out of this crisis is to increase their revenue and by putting a moratorium on the introduction of new trains or new wagons etc.
On the contrary, I would say that the railways should now look at reduction of cost to customers. I was reading in the papers today that the railways are signing an Memorandum of Understanding (MoU) for assured off take of Mainline Electrical Multiple Units (MEMU) trains from certain public sector companies.
My question is that if the capacity for the MEMU trains exists in India, whether such assured off take contracts would increase the cost of the railways. This is because at the end of the day if nobody is fully loaded, the costs would invariably get passed to the railways and through the railways to the consumer. So, I think that is one area which I would strongly request and submit to the railways to consider whether this enhancement of capacity or resources to manufacture the critical components is something which is being done in a planned manner, so as to not build in inefficiencies.
But I really do not think that putting a moratorium on new trains would help the railways. I think it would be counterproductive.