Mukesh ButaniBMR Advisors
For the first time, the Rail Budget of Indian government elicited such unprecedented expectations. Minister Suresh Prabhu’s maiden budget scores well, if viewed from a directional standpoint. Budget focuses on laying down medium to long term initiatives for transforming rail infrastructure. A 5 year target for significant capacity augmentation on existing railroad network stands out; building capacity through incremental measures such as gauge conversion, technical improvement for enhancing speed, etc will avoid land acquisition concerns which had most unceremonious beginning to the Budget Parliament. Enhanced budgetary allocation (more than USD 100bn) for investments in next five years towards capacity building and infrastructure development is bold and ambitious. It ought to boost speed of reforms!
As anticipated, Mr Prabhu avoided low-hanging fruit of passenger fare hike, and rightly so to prevent diversion of passenger traffic to other more affordable means of transportation, especially since fuel price rationalization in past eight months can trigger price wars in aviation sector. Enhanced focus on passengers’ safety and cleanliness of rail wagons are welcome steps to enhance overall travel experience and also aligns to larger vision of ‘Swatch Bharat’. These intrinsic measures shall enable garnering additional revenues by augmenting overall rail traffic, both on passenger and freights corridors.
The budget does well in underlining the strategic significance of rail infrastructure towards inspiring PM Modi’s flagship programmers including Make in India and Digital India. Five-pronged transformation agenda echoes the larger intent of the present government to embark on this most significant infrastructural reforms. Proposals to enhance investment in building innovation capabilities and move towards embracing preventive maintenance framework shall hold key to transformation of Indian rail system into enviable world class infrastructure.
Equally encouraging is to hear the government’s long term commitment to reforms; I shall hope Vision 2030 proposes carrying out significant regulatory reforms to encourage private investment in domestic manufacturing for developing a world class yet cost-competitive rail infrastructure. Reference to cooperative federalism philosophy shall inspire participation of states and PSUs in government endeavors. Enhanced roof top installations on wagons shall enable harnessing energy generation potential of railway system. CNG to be encouraged as alternate fuel for running locomotives.
In a couple of major overhauls, the Budget perhaps for the first time identifies distinct measures for resource mobilization through ‘institutionalization of assets’ under PPP model of development, instead of privatization; private players shall anxiously await guidance to identify opportunities to partner with the Railways. Secondly, proposals to leverage low cost funds from insurance funds and crowd funding from institutional investors are huge positives and will allow better access to capital markets for long term financing. Key to the above two measures would be time bound implementation.
Mr Prabhu has stuck to his core competency – being a chartered accountant, his attention to numbers has been paramount. He has demonstrated ‘out of box’ thinking as to how rail assets can be better utilized. Given the quantum of capital investment required to augment limited capacity of private players in this sector, coupled with common man’s interest, his challenges are no different than FM Jaitley’s as to how does one make up for deficit.No details of FDI liberalisation in rail projects and idea (or lack thereof) on long term financing took me by surprise; perhaps, the government is taking one step at a time!
Overall impression – budget for rail reforms!
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