Review and impact analysis of the Railway Budget by CARE Ratings
The Railway Minister presented his maiden Budget for FY16 with an agenda that outlines a vision of a new dimension which will transform the Indian railway system over a period of 5 years with emphasis on creation of robust railway infrastructure and improved customer services. The proposals lay emphasis on safety, decongestion & capacity augmentation, electrification, modernization, technology up gradation and significantly improving operating ratios.
The Railway Minister has laid down in its agenda a set of four goals. To achieve the same it proposes five key drivers with focus on eleven thrust areas.
Goals1. Improvement in customer experience by way of systematically addressing the concerns regarding cleanliness, comfort, accessibility service quality and speed of trains.2. To make Rail a safer means of travel3. To expand Indian Rail’s capacity substantially and to modernize infrastructure.4. To make Indian Rail financially self-sustainable
Drivers1. Adopting a medium-term perspective2. Building Partnerships3. Leveraging additional resources4. Revamping management practices, systems, processes, and re-tooling of human resources5. To set standards for Governance and Transparency
Highlights:> No hike in passenger fares> The freight structure for the base class-100 has been proposed to be increased by 10%. The rates will be effective from 1st April 2015> Plan Outlay Proposed at Rs.1,00,011 crore, increased by 52%> Allocation for passenger amenities up by 67%> Proposed to increase track length by 20% from 1,14,000 km to 1,38,000 km:> Grow annual freight carrying capacity from 1 billion to 1.5 billion tonnes.> Hot buttons, coin vending machines for railway tickets within 5 minutes, e-catering to select meals from an array of choices> 200 more stations to come under Adarsh Station scheme; Wi-Fi to be provided at B category stations> 24X7 helplines for attending passenger problems and security related complaints> For the safety of women passengers surveillance cameras in suburban coaches> The speed of nine railway corridors will be increased to 160 and 200 kmph> 77 new projects covering 9,400 km of doubling/tripling/quadrupling works proposed> A new department for keeping stations and trains clean under ‘Swachh Rail Swachh Bharat Abhiyan’ to be set up> Commissioning 800 km of gauge conversion targeted in current fiscal.> Resource for financing Plan expenditure
Budget Implications on economy and Industry
1. Efficiency:The measures to improve the operational efficiency to achieve the target of 88.5% operating ratio of the rail system will leave a larger surplus amount with railways which can be used for expansion purposes.
2. Capital formation:The share of railway investment (as per the capital outlay of Rs.65,796 crore) in Gross fixed capital formation (GCFC) was 1.8% in FY15. Under ceteris paribus conditions, the growth rate of GFCF could increase by 0.1%-0.2% (7.4% to 7.5%) in FY16 based on the increase of 52% in capex envisaged in FY16. The share of railways in GFCF will increase under these ceteris paribus conditions from 1.8% to 2.5-2.6%.
3. Industrial growthThe expansion by way of additional lines in the railway system will have an indirect and positive impact on growth across various sectors such as cement, steel, Electrical equipment, Railway wagons, cables, etc. This in turn shall positively contribute to the economic growth of the country.
4. Services sector:The use of technology by providing easy access to customers through mobile phones and other e-platforms will provide a boost to the telecommunication and IT industries. Also provision of food and other passenger amenities is likely to boost the overall service industry in particular the tourism industry.
5. Inflation:The upward revision in freight rates across various commodities is likely to have inflationary impact of about 0.4-0.5% in WPI inflation (assuming all other factors remain unchanged) when both the direct and indirect impact is taken into account.
6. Corporate debt market:The partial funding of railways by of market borrowings of Rs.17,655 crore compared with Rs 12,046 cr in FY15, which would lead to a an increase in activity in the corporate bond market.
Disclaimer: This report is prepared by the Economics Division of Credit Analysis &Research Limited [CARE]. CARE has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE (including all divisions) has no financial liability whatsoever to the user of this report.
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