Did Railway Budget 2010-11 excite?

India Infoline News Service | Mumbai |

Railway Budget did well in announcement of Vision 2020. It focused on populist measures & kept passenger rates unchanged. Freight rates remained unchanged. Setting up an aggressive target of adding 1,000 km lines next year & PPP in multiple areas were key positives, but much repair work is left, especially given the financial constraints faced. Important details were skipped, possibly the reason some stocks falling sharply…

The Railway Budget 2010-11 did well in announcement of Vision 2020. Setting up an aggressive target of adding 1,000 km lines next year and 25,000 kms in next 10 years (over five-fold increase from the 58-year average), is a step in the right direction. Even if one assumes a 40-50% delivery, it still means huge opportunities for companies in this space and transformation for Indian Railways. The other significant move was the plan to involve the private sector through the PPP route in multiple areas. If procedural and administrative issues are resolved by the new task force, new players with deep pockets can be expected to enter this segment in the medium term.

 

The Budget focused on populist measures and kept passenger rates unchanged. Freight rates too, remained largely untouched and were lowered for a couple of essential commodities. Railway budgets rarely dish out negative surprises and even though performance of Indian Railways marginally managed to beat conservative budget estimates set last year, much repair work is left, especially given the financial constraints faced. Important details were skipped from key announcements on new corridors as well; possibly the reason some stocks fell sharply shedding recent gains.

 

Populace measures

Railway Budget 2010-11 can be describe as a people centric one, leaving passenger rates untouched for the seventh year in a row. Service charge on AC fares was slashed to Rs20 from Rs40. These moves are along expected lines, given the agenda of inclusive growth and elections round the corner in West Bengal. This was a continuation from the previous budget, where passenger and freight rates were untouched and tickets were made cheaper for the poor.

 

A revival in the economy helped the railways register better than expected performance on the freight front, enabling the minister to hold freight rates again. In fact, rates on kerosene and foodgrains were reduced by Rs100 per wagon. It was expected that essential commodity loading rates would be unchanged at least, if not reduced.

 

Looking at new business models – PPP approach

Mamta Banerjee recognized the need to welcome private investments in Railways and has announced a special task force to be put in place to clear proposals for investments within 100 days. While developing new business models is a step in the right direction, proposals were somewhat ambiguous. Progress under PPP has been poor in recent years, but if speedy action can be taken, new players with deep pockets are bound to enter this segment in the medium term.

 

Ambitious target of line additions – over 5x historic implementation

After adding just 10,419 kms 58 years (current network strength at 64,015 kms), at an average of 180 kms per year, the budget aims at adding 25,000 kms of new lines in next 10 years as part of Vision 2020. The immediate target is for adding 1,000 kms in a year’s time. Even if one was to assume 50% delivery rate, this spells enhanced opportunities for players in this space.

 

Key issues still need attention

The Railways need to work on a plan to regain market share in freight movement of goods. The road network currently accounts for ~70% freight traffic. In India, freight charges are 2x the level prevalent in China and require rationalization through phased reduction in cross subsidization. Capacity constraints on high density corridors, logistics management, terminal improvement and fast and safe transportation of goods are issues yet to be addressed.

 

Important working details missing

The minister announced intentions to set up a high speed rail corridor, dedicated passenger corridor, additional freight corridors and commencement of door-to-door service for freight movement, among others. However, it failed to communicate the way forward for any of these. Notable progress is yet to take place in dedicated freight corridors put forward a few years back and indication on timelines is missing once again. The budget speech also mentioned raising Rs100-200bn by next fiscal, but how the resources are to be raised and detailed use for modernization and upgradation were skipped.




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