Rail Budget 2015: A risky Budget

Within a framework of four goals, five drivers and 11 thrust areas, the Railway Minister has very cleverly been shepherd by Railway Board Directorates to deliver their wish lists to the Parliament, in the form of a Railway Budget Speech.

While it is welcome that no new trains were announced on the plea that much needed track upgradation has to be carried out first, it is disappointing, that a rather reckless approach has been taken on investments on the basis of borrowed funds.

The Ministry of Railways has taken over complete responsibility of financing a national infrastructure, from Ministry of Finance.

That, too, with no repayment plan.

The railway is already feeling the heat of high freight tariffs with respect to capricious commodities like cement. Passenger tariffs compete with low-cost airlines. Thus, the debt servicing burden that the Railway Minister is trying to take on from Ministry of Finance is likely to be totally unsustainable.

Railway Minister's intent is to ape China. However, Chinese railway loans for HSR (high speed rail) were backed by a surcharge on railway freight, just as Ministry of Railways in India had imposed on freight to finance Dedicated Freight Corridors in 2006.

There is no such strategy here, as the Budget has been compiled as an exercise in grammar without depth of knowledge. The Minister would be well advised to examine the margins on IR's operations, which are amply evident in the depleted fund reserves.

The details like which railway PSU will hold these borrowings on their balance sheet, which global lender will like to invest in railway projects that have long gestation periods and low returns or where returns are used to cross-subsidise internal businesses, and how Railways will service this huge debt when the railway business models all over the world run on negative or at best fine operating margins are left to imagination.

Incidentally this wish list of passenger amenities and safety works, including signalling and new track machines, etc. is not new. These very items appear on the Railway Board files over the past two-three decades in varying forms. Presenting it in new garbs like white papers and vision documents is also not new.

Even the cleverly crafted stitching of these items into new missions - Swachh Bharat and Make in India - raises the point of implementation and credibility of delivery.

While the Railways have the ability to deliver, it would have been better to set more credible targets given the fact that these targets are being set along with thrust areas like reorganisation and new forms of governance. Such thrust areas are good in intent but will affect ability to perform in an already well-tuned organisation that is asked to realign its processes.

Expenditure of Rs 8.5 lakh crore in five years has to be juxtaposed with the ability of the railways to spend this money. The capacity even to handle contracts is not created overnight.

There are other matters which the Minister will have to take care of. In the flurry of announcements on passenger amenities, most of which are old intentions, the challenge will be in delivering these to a population that is increasingly becoming cynical about delivery of announcements. There are a lot of suggestions in the Budget that indicate that a naive approach has been adopted.

For example, stations for redevelopment on open bidding. Finalising the templates for such an open invitation itself will be interesting.

(The author is Retired Financial Commissioner (Railways) and ex officio Secretary to Government of India)