26 FEBRUARY 2016

Ø  Railway Minister Suresh Prabhu effected no hike in passenger fares, indicated a cut in freight tariffs, admitted that the global economic slowdown is hurting India’s core sectors and pointed out that the looming impact of the Seventh Pay Commission made it one of the toughest times to formulate a Budget. Yet, Mr. Prabhu, in his second Rail Budget presented on Thursday, unveiled a bouquet of new train services, innumerable new initiatives to make life easier for passengers and proposed an ambitious capital outlay of Rs. 1.21 lakh crore for 2016-17, a jump of 21 per cent over this year. While the Railway Minister didn’t refer to a sharp 50 crore shortfall in his passenger traffic estimates for 2015-16 — the Railways is expected to carry just 810 crore passengers down from 860 crore that he had projected in the last budget — he sought to win back passengers by offering some airplane-type features like on-board entertainment and travel insurance options at the time of booking. The Minister also signalled a fresh approach to woo industry from alternative modes of transport that have chipped away a large share of its freight traffic over the years, by moving away from the typical focus on increasing revenues through tariff hikes. We want to challenge our conventional thinking on freight policies to win back our share in the transportation sector. We will exploit new sources of revenue so that every asset, tangible or non-tangible, gets optimally monetized. he said, referring to potential revenues that could accrue from advertising and monetisation of the Railways’ vast land holdings. Chairman of the Railway Board A.K. Mittal later said the Railways is looking at bringing down its freight rates for the first time in the coming year, in a bid to increase revenues through higher volumes. While Mr. Prabhu reiterated the government’s commitment to rev up the economy through public investments, he is betting on a string of belt-tightening measures, other income and optimism to fulfil that commitment with gross budgetary support of Rs. 45,000 crore for the public utility in 2016-17. Pointing to austerity measures yielding savings of Rs. 8,720 crore this year, the Minister promised to increase cost optimisation in diesel, electricity and other expenses. “…With an optimistic outlook for the economy… we hope to generate revenues of the order of Rs. 1,84,820 crore next year, 10.1 per cent higher than the revised target for 2015-16,”

Ø  Besides proposing to tap new revenue streams and optimising expenses, Railway Minister Suresh Prabhu in his budget presented on Thursday announced a radical overhaul of its organisational structure, more transparency and a hard look at the status quo on its operational parameters such as the average train speed. Significantly, the Minister said more powers have been delegated to the zonal railways for faster decision-making. He has also introduced accountability for officials not usually seen in the government. This includes defining key result areas (KRAs) for general managers and divisional railway managers to evaluate their performance. He also said a single official would be made accountable for each train’s on-board experience to address passenger concerns, even as a third party audit will be conducted to ensure the quality of services on trains and stations. While the government stuck to its stand on not announcing new train routes in the Rail Budget, it however committed to expediting critical projects to connect the North-East and Jammu and Kashmir with the rest of the country. The Railway Minister also announced three new dedicated freight corridors to connect North-South (Delhi to Chennai), East-West (Kharagpur-Mumbai) and East Coast Corridor connecting Kharagpur to Vijayawada. The projects, he said, will be taken up on a priority basis. Over the next four years, the Minister said the Railways will work on ensuring reserved accommodation to travellers on demand, time tabled freight trains (for which a pilot will be started in 2016-17) and semi-high speed trains along the Golden Quadrilateral. “That new project announcements are limited indicates adherence to implementation focus, highlighted in the previous Budget,” said Manish Agarwal, Partner and Leader-Infrastructure, PwC India. “Among the new announcements, East Coast connectivity through Dedicated Freight Corridor is perhaps the most impactful, as it would contribute to India participating in global production networks in South East Asia, and to Make in India,” he said.

Ø  Products from at least seven Indian companies figure in a large supply of components that have ended up in explosives used by Islamic State terrorists. The European Union-funded 20-month-long study by the Conflict Armament Research (CAR) states that the seven Indian companies “manufactured most of the detonators, detonating cord, and safety fuses documented” by their field investigation teams. However, there was no illegality on the part of the Indian companies, the report says. “Under Indian law, transfer of this material requires a licence. All components documented by CAR were legally exported,” the report says.

Ø  Railway Minister Suresh Prabhu, in his second budget, announced increasing investments by 21 per cent to Rs.1.21 lakh crore in 2016-17 – more than double the average investments made by the previous United Progressive Alliance (UPA) government in the 2009-14 period. While most analysts were sceptical over the source of this investment promise, Mr. Prabhu was candid in admitting that “these are challenging times” for the Railways. In 2015-16, the plan outlay stood at Rs. 1 lakh crore. “These are challenging times, may be one of the toughest. We are faced with two headwinds, entirely beyond our control; tepid growth of our economy’s core sectors due to international slowdown and the looming impact of the 7th Pay Commission and increased productivity bonus payouts,” Mr. Prabhu said. The budget factored in Rs. 20,500 crore as impact of the recommendations of the 7Th Pay Commission in 2016-17; leading to a decline in the projection of the operating ratio to 92 per cent (the Railways will spend 92 paisa to earn a rupee). Operating ratio is a measure of financial performance of the Indian Railways and a lower ratio means better efficiency. In 2015-16, the operating ratio declined to 90 per cent from 91.3 per cent in 2014-15. “The decline in operating ratio from 88 per cent to 90 per cent, and to 92 per cent for next year is along expected lines, with freight and passenger traffic remaining nearly flat, and expenses continuing to increase. In this context, how the increased investment target of Rs.1.2 lakh crore will be met, becomes more pertinent,” said Manish Agarwal, Partner and Leader - Infrastructure, PwC India. Shashikant Hegde, chief executive officer of Projects Today raised questions over the source of the required investment money. “Most of the state governments coffers are empty and private players are currently not in a mood to pick up PPP projects. While international agencies are open for investing in Indian projects, they demand more reforms and at faster pace,” Mr. Hegde said. The government plans to raise Rs. 20,985 crore in 2016-17 from institutional financing, a 119 per cent increase from the revised estimates of 2015-16. However, Railway Board Chairman AK Mittal said despite the burden of Seventh Pay Commission, the operating ratio is projected to move up by two per cent. “Usually, the burden of Pay Commission increases the operating ratio by five per cent,” Mr. Mittal said. As both passenger and freight traffic declined, the revenue earned by the Indian Railways was hit. The total revenue declined by 8.9 per cent to Rs.1.72 lakh crore in 2015-16 compared with last year. The gross traffic earnings were 8.6 per cent less than the target of Rs.1.83 lakh crore in 2015-16. The freight earnings were hit due to poor performance by the core sector – which constitutes around 88 per cent of the goods transported by the Indian Railways. Mr. Mittal said the total passenger traffic declined in the short distance traffic as people may have chosen road as alternate means of transport. He, however, added the traffic on long-distance routes grew by around 5 per cent. In 2016-17, the minister projected the gross traffic receipts at Rs.1.85 crore, an increase by 10 per cent over the revised estimates of the present year. An incremental traffic of 50 million tonne in freight is expected in 2016-17 as the government is looking to bring down freight tariffs and look to increase the basket of freight goods. The share of railways in the total freight traffic (35 per cent at present) has been consistently declining over the years, as pointed out by the Railway Minister. The total revenue is expected to grow by 10 per cent to Rs.1.89 crore in 2016-17 as the government is looking to tap other sources of revenue besides passenger and freight. Mr. Prabhu listed station redevelopment, monetising land along tracks, monetising soft assets, advertising as some of the means to shore up non-fare revenues.

Ø  In its biggest diplomatic move after the Pathankot attack, India will approach the United Nations on Friday to include the Pakistan-based terror mastermind Maulana Masood Azhar on the list of globally designated terrorists. We will be moving the 1267 Sanctions Committee to also include the name of Masood Azhar on the sanctions list. It is a great anomaly that the Jaish-e-Mohammed (JeM) is listed but not its leader. In June 2015, India moved the committee in the United Nations, demanding an explanation from Pakistan for its decision to release the 26/11 attack plotter Zakiur Rahman Lakhvi from jail. The attempt to isolate Pakistan, however, failed at the last moment because of China’s opposition. Officials said that this year too, China’s attitude would be watched. However, according to experts, the attempt to isolate Masood Azhar has a greater possibility to succeed at the 1267 Sanctions Committee.

Ø  The country will get three new dedicated freight corridors, according to the Railway Budget 2016, in addition to the Delhi-Mumbai and Delhi-Kolkata freight corridors that are due to be commissioned in 2019. The new projects are a North-South corridor, from Delhi to Chennai, an East-West corridor from Karaghpur to Mumbai and an East Coast corridor, from Kharagpur to Vijayawada. Given the emphasis on rapid expansion of freight business, it is essential to build more dedicated freight corridors for increased traffic with consequent benefits for the economy and environment. The projects will be financed through a PPP (public private partnership) mechanism and rolled out on a high priority basis, Mr. Prabhu said. Indian Railways’ (IR) share of the freight market has been declining and the Railway Budget includes several measures to address this trend, including running time-tabled freight trains “with credible service commitments” by 2020. Network capacity constraints have prevented the railways from running time-tabled services so far but IR will start running container, parcel and commodity trains on a pilot basis in 2016. Expanding the freight basket, which is highly concentrated (10 commodities account for 88% of the mix), building terminal capacity to improve last mile connectivity and rationalising tariffs structures so freight is competitive with other modes were among the other policies unveiled by Mr. Prabhu. The 2020 vision of the minister clearly defines the special package to improve the freight ecosystem in India thus getting fresh revenue streams for IR.