Ahead of Budget, railway finances way short of Prabhu's promise

When Rail Minister Suresh Prabhu presented his maiden Budget last February, he promised a freight growth target never achieved before in the national transporter's 160 year-old history. Railways was to carry an incremental 85 million tonnes (mt) of goods in 2015-16, against the traditional average loading of less than 50 mt annually. That was the biggest announcement of the Budget.

"Freight traffic is pegged at an all time-high incremental traffic of 85 mt, anticipating a healthier growth in the core sector of the economy, specially where rail co-efficient is high and by tapping full railway potential to cater maximum to demand side," Prabhu had said. Railway board members had explained the tall target was based on an expectation of 8-9 per cent GDP growth and increased coal traffic, amid a mood of hope and celebration of change.

A year later, the mood has turned somber and the grim reality of dismal freight growth, which accounted for 65 per cent of railways' total earnings of Rs 1.63 lakh crore in FY15, is staring at Indian Railways in the face. Railways' freight volumes were budgeted to rise eight per cent to 1,186 mt in 2015-16 from 1,101 mt in 2014-15. Between April and December 2015, freight volumes stood at 816 mt, seven per cent less than the targeted 880 mt during the period and a marginal one per cent higher than 808 mt recorded in the corresponding period in the last financial year.

The Railways had budgeted for a six per cent increase in goods earnings to Rs 1,11,852 crore in 2015-16 from Rs 1,05,791 crore in FY15. Between April and December 2015, freight earnings stood at Rs 80,526 crore, three per cent less than the targeted Rs 82,676 crore during this period and six per cent more than Rs 75,779 crore recorded in the corresponding period in the last financial year. This increase in the year-on-year earnings despite low growth in volumes is explained by the average four per cent hike in freight rates announced in the last Budget.

Ahead of the Budget to be presented on February 25, Prabhu has acknowledged subdued freight volumes, apart from the impact of the seventh pay commission, as major problem areas for Railway finances. Of the incremental 85-mt tonnage target, 42 mt was to come only from coal, the largest component of Railways' commodity traffic basket. Also, nine mt extra was to come from iron ore and seven mt from cement traffic.

Railway officials blamed the lower-than-expected economic growth and worsened finances of power utilities for the dismal performance on the freight front. "There is enough coal for transport and railway rakes, too, are available in plenty. But, thanks to the precarious financial situation of power discoms, demand for power and in turn the requirement of coal from utilities has fallen sharply," said a senior rail ministry official.

Concerned over the freight problem, the rail ministry's brass has held a series of meetings in the past month with its counterparts in the coal and power sectors. In one such meeting chaired by member-traffic of the Railway Board Mohammed Jamshed on January 13, it was noted that railways' rake supply had increased 10 per cent in the April-December 2015 period against a 9.1 per cent rise in Coal India's production. "The rake loading could have been further increased but for the muted demand from the power sector due to unprecedented coal stocks of 32 mt in power plants compared to 13 mt in January 2015," said a senior rail ministry official.

In this year's Budget, the rail ministry is likely to announce new Dedicated Freight Corridors while no new passenger lines are likely to be announced. With constrained budgetary suppport and the absence of a major fare or freight hike, the rail ministry's dependence on borrowed funds may go up may in the year ahead.

"Low GDP growth has surely pulled down demand for goods traffic. But how would they explain such a huge overestimation of freight growth? All the other line ministries, too, including coal, power and mines must answer this question," said former Railway Board Financial Commissioner R Sivadasan.

It is the same story on the passenger side. In line with an already decreasing trend, railways had budgeted for a mere three per cent rise in passenger volumes to 8,601 million in 2015-16 from 8,350 million in the last financial year. Between April and November 2015, railways carried 5,453 million passengers - 5.3 per cent less than the targeted 5,760 million during the period and 2.2 per cent less than 5,578 million recorded in the corresponding period a year ago. In this year's Budget, the rail ministry is likely to announce new Dedicated Freight Corridors while no new passenger lines are likely to be announced. With constrained budgetary suppport and the absence of a major fare or freight hike, the rail ministry's dependence on borrowed funds may go up may in the year ahead.

Similarly, passenger earnings of Rs 33,105 crore for the April-December 2015 period were nine per cent less than the target of Rs 35,042 crore, but 5.4 per cent more than Rs 31,406 crore earned from passenger segment in the same period in the last financial year.