2015: A Year Of Optimism For Indian Railways

For Indian Railways, the year 2015 will go down in history as perhaps the most fruitful year on the parameters of policy initiatives led by the dynamic leadership of railway minister Suresh Prabhu. As per railway ministry, 103 initiatives have been implemented that were announced by Prabhu in his maiden railway budget speech in February. Some of these include installation of escalators and lifts at railway stations, capacity enhancements on several routes, improved connectivity in the north eastern states, higher commissioning of new lines, doublings and gauge conversion projects, elimination of unmanned level crossings among others.

As per the latest communications issued by the railway ministry, the passenger earnings were up by 8.5 per cent for the period April-September 2015 over the corresponding period in 2014. As per the figures, the passenger earnings stood at Rs 23,100 crore (April-September 2015) as compared to Rs 21,069 crore (April-September 2014). "Although the number of passengers has declined over the years, both the passenger kilometres and passenger earnings have increased," it said.

Railway ministry said its total earnings stood at Rs 78,951 crore thereby recording a jump of around 9 per cent in the April-September period this year compared to same period last year. The freight earnings also went up by 10.56 per cent in this period versus the comparable period a year ago.

Pending projects stuck for decades went active under the leadership of Prabhu. For example the Diesel and Electric locomotive factories at Marhowra and Madhepura (both in Bihar) have been revived after Indian Railways signed the formal contract agreement with USA based GE (for Marhowra) and France based Alstom (for Madhepura) on November 30, 2015. It was described as the single largest foreign direct investment (FDI) deal in manufacturing said the Finance Minister Arun Jaitley who was also present on the occasion.

Going the JV, SPV route
In order to expedite completion of railway projects pending across various states, formation of Special Purpose Vehicles (SPV) or the Joint Venture (JV) route is the best possible solution Prabhu has already said at various public events. As part of the JV, the railway ministry is providing the land for the factory for a period of 30 years in accordance with the land lease agreement and the Indian Railways will continue to hold equity of not less than 10 per cent in the JV Company until the supply period of 11 years. The JV has also been given the liberty to produce additional locomotives over and above the assured off-take for the Indian Railways, for other customers during the supply period.

In August the railway ministry had approached all State governments urging them to form SPVs for completing all pending railway projects. That request has started bearing fruits as at least 17 State governments have consented to form the SPVs. On November 4, 2015, Railways signed one of the first memorandum of understanding (MoU) with Odisha government. Under the proposed SPV, which will work on cost sharing basis, the Odisha government will have 51 per cent share in the SPV while railways will contribute the balance 49 per cent. The main objective of the SPV will be to provide rail connectivity to backward districts of Odisha which includes Malkangiri, Nabarangpur, Kandhamal, Deogarh, Boudh and Kendrapara. Initially Rs 200 crore is expected to be invested in the SPV. Through the SPV, the aim is to provide rail connectivity to seven districts in Odisha including the Naxal infested Malkangiri and Nabarangpur districts, railway officials explained.

Railway minister Prabhu said that the MoU with Odisha is a welcome step which will go a long way in the infrastructure development in the State of Odisha. “Such JV companies will provide the necessary impetus for faster growth of railway network in various States including Odisha,” he said.

Pay Commission Worries
Despite some good work done, the rail minister Prabhu fears a rise in its outgo may hamper the growth trajectory in the coming years. The fear pertains to the additional financial burden of Rs 32,000-crore once it implements the recommendations made by the Seventh Pay Commission. Prabhu has already reached out to the Finance Ministry seeking additional help to meet what he calls the “unbearable burden”. The Railways is the largest employer with over 13 lakh staff and an equal number of pensioners.

The current expenditure on salary for the railway staff comes to Rs 58,350 crore. Add to it the pension amount of Rs 33,200 crore. Together, it is over Rs 93,500 crore. Once the Seventh Pay Commission recommendations are added to it, the annual salary and pension budget is expected to swell up by additional Rs 32,000 crore.

Railways has two main source of income – passenger fare and freight. While revenue from passenger fares account for around 28 per cent of railway income, over 60 per cent comes from freight. On the expenditure side, around half goes towards staff salary, allowances and pension fund while over 20 per cent goes to meet the fuel expenses. Rest are miscellaneous expenses.

Revenue Impact
Stopping short of hiking the rail fares, which is a politically sensitive step, Indian railways has taken silent steps to augment the passenger revenue. It hiked the Tatkal ticket charges from December 25. While a passenger has to shell out Rs 200 for the Tatkal booking of Sleeper class instead of Rs 175, for AC-3 the maximum revised charge is Rs 400 instead of Rs 350 earlier and minimum is Rs 300 instead of Rs 250, said the Railway notification. In Sleeper class minimum Tatkal charge was Rs 90 which has been hiked to Rs 100. Minimum and maximum charges depend upon the travel distance. The hike is more for the AC class segment while the Second Class Tatkal charges remain unchanged. In AC-2 a passenger has to pay Rs 400 now as against the earlier rate of Rs 300 in minimum Tatkal charges and Rs 500 as maximum charge against Rs 400 earlier. In Executive Class, the minimum Tatkal charge has been hiked to Rs 400 from Rs 300 and maximum Rs 500 from Rs 400.

However, the Tatkal booking for Second Class sitting has not been changed and remain same at Rs 10 and Rs 15 as minimum and maximum charge respectively depending on the distance. Even cancellation charges went up in November.

"Challenging times are ahead. I cannot say now what steps we will take to tackle this but railways will need to focus on increasing revenue from non-railway operations like monetisation of railway stations etc," Prabhu told Rajya Sabha Television recently in an interview.

In all possibility, railway ministry insiders say the public should gear up for another round of hike in railway fares particularly for the AC class.

In 2015, Indian railways under Prabhu managed to kick-start the much talked about Bullet Train project with the help of Japan. The work has been started and the project is expected to be operational in next seven years. On December 12, it is formally announced that India will be using the Shinkasen Technology for Mumbai-Ahmedabad High Speed Rail Project. India and Japan signed an MoU on cooperation and assistance in the Mumbai–Ahmedabad High Speed Rail Project. Japan has offered an assistance of over Rs 79,000 crore for the project which entails the construction of 508 Kilometre railway line. The total project cost is pegged at Rs 97,636 crore. The cooperation of Japan will be fixed on transfer of technology and “Make in India”. Japan will assist India in training of personnel for HSR.