Statsguru: Taking stock of railways

In his last Budget, Suresh Prabhu, set an ambitious target for capital expenditure

In his last Budget, Suresh Prabhu, Minister for Railways, set an ambitious target for capital expenditure. 

As chart 1 shows, capex was budgeted at Rs 1,21,000 crore in 2016-17, up from Rs 82,192 crore in 2015-16. 

But according to reports, by December, the railways has managed to spend only Rs 68,059 crore. While officials believe the year-end number may well be higher, in the range of Rs 85,000 crore to Rs 95,000 crore, it will still be at least 20 per cent below the Budget expectations. This capex push was largely in five areas. As shown in chart 2, the capital outlay in electrification, road safety, rolling stock, new lines and doubling accounted for roughly two-thirds of the capex. Thus, any shortfall is likely to largely reflect in these areas. 

The railways' operating ratio (ratio of working expenditure to the revenue earned from traffic) was also projected to rise to 91.6 per cent in 2016-17, as shown in chart 3, presumably on account of the 7th Pay Commission. Pension obligations, too, are expected to rise, as shown in chart 4.

Prabhu had also budgeted passenger revenue to grow 12.4 per cent in 2016-17, up from 7.6 per cent the year before. This is surprising, as despite having one of the lowest passenger fare to freight ratios in the world (chart 5), the convenience of air travel over longer distances and lower costs of road travel over shorter distances have pushed passenger traffic away from railways. Freight traffic, as shown in chart 6, is dominated by coal and is likely to suffer owing to demonetisation and may well fall short of budgeted expectations. 

In the light of these facts, it is difficult to see how will the Indian Railways meets its 2016-17 targets, as detailed in chart 7.