Railway Budget 2016-17 Highlights: Overcoming capacity constraints and improving efficiency

Overcoming capacity constraints and improving efficiency

With the Railway Budget 2016-17, the Ministry of Railways (MoR) has continued its earlier focus on process improvement while abstaining from populist measures. The budget lays down three strategies – new structures, new revenues and new norms. It also focuses on the need for reform measures, capacity augmentation, improvement of freight and passenger services, constitution of a rail regulator and its role, rationalisation of tariff rates, setting up of a railway planning and investment organisation for drafting medium- and long-term corporate plans, generating resources from undertapped areas like advertising and monetisation of available land, and reducing energy consumption.

Budgetary allocations and resource mobilisation

In a very significant move, the MoR increased the plan outlay for 2016-17 to Rs 1.21 trillion, a 21 per cent increase from the expected plan expenditure in 2015-16. The gross budgetary support was also increased to Rs 450 billion for 2016-17 compared to the revised estimate of Rs 320 billion in 2015-16, a hike of about 40 per cent.  Further, the MoR aims to collect Rs 1.85 trillion as gross traffic receipts during 2016-17 as against the revised estimates of Rs 1.68 trillion during 2015-16, an increase of 10.1 per cent.

The budget targets an operating ratio of 92 per cent for 2016-17. The higher operating ratio is due to the financial burden arising out of the increase in salary outgo as per the Seventh Pay Commission recommendations. Meanwhile, the operating ratio target of 88.5 per cent set for 2015-16 remains unachieved; the revised estimate has been pegged at 90 per cent.

To meet its investment targets, the ministry plans to mobilise funds from the Life Insurance Corporation of India. Moreover, the Indian Railway Finance Corporation will issue infrastructure bonds, and a development fund will be set up with assistance from multilateral institutions like the World Bank to mobilise resources. Besides this, the MoR is also exploring new avenues of revenue like monetising land and buildings through commercial exploitation of vacant land and space rights over station buildings; land along tracks; and soft assets such as data, software, etc. The ministry targets an increase in advertising revenues by over 300 per cent.

The ministry also plans to liberalise the current policies for parcel despatch. This includes opening up the sector to container train operators and providing services to the growing e-commerce business. In addition, the MoR has set a target of Rs 40 billion revenue earnings by 2020 from manufacturing activities of production units and workshops for the domestic and international markets.

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Strategies and reform measures

The MoR has announced missions to take forward seven activities in a time-bound manner. These missions are for switching to 25 tonne axle load, increasing speeds, undertaking accounting reforms, commissioning 100 sidings/private freight terminals in 2016-17, preparing a blueprint for utilising the network once dedicated freight corridors (DFCs) are commissioned, ensuring a zero-accident level, and increasing consumption efficiency.

The ministry has highlighted the need to restructure the Railway Board and set up the Railway Planning and Investment Organisation. It has also proposed the setting up of a holding company for railway public sector undertakings; a special railway establishment for strategic technology and holistic advancement of research and development; and a special unit for transportation research and data analytics. More importantly, the MoR has stated that the draft bill on the setting up of a rail regulator – the Rail Development Authority of India – will be finalised soon. The key functions of the authority will include fixing tariff, ensuring fair play and a level playing field for private players, determining efficiency and performance standards, and disseminating information.

Meanwhile, the railway ministry has announced that it will review the tariff policy to evolve a competitive rate structure vis-à-vis other modes of transport, permit multi-point loading and unloading, and apply differentiated tariffs to increase utilisation of alternative routes. It is also keen on signing long-term tariff contracts with key freight customers using predetermined price escalation principles.

Furthermore, specialised teams have been mandated to assess railway operations as part of Indian Railways’ (IR) internal audit initiatives. Under this, specific areas of operation will be targeted to detect inefficiencies and prevent wastage. In the railway budget it was announced that each zonal railway will submit reports on this by March 31, 2016.

The central government also took a major decision in approving the formation of joint ventures between IR and state governments for undertaking rail projects. It was announced that 17 states had given their consent and six MoUs had been signed till February 2016. Also, 44 new partnership works covering about 5,300 km and worth Rs 927.14 billion were listed by IR.

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Capacity augmentation proposals

The high level of budgetary allocation is expected to boost IR’s expansion drive. The MoR aims to commission 2,800 km of broad gauge lines during 2016-17 as compared to the 2015-16 target of 2,500 km. The pace of broad gauge expansion has been targeted to be increased to about 13 km per day in 2017-18 and 19 km per day in 2018-19 from about 7 km per day in 2016-17. Also, there is a significant focus on electrification with a 50 per cent higher outlay and a target of completing 2,000 km in 2016-17. Meanwhile, 90 new projects with a total investment of Rs 1,261 billion covering about 8,432 km have been included in the budget. These relate to new lines, doubling, gauge conversion and metropolitan transport projects.

A landmark announcement in the railway budget was the proposal to develop three additional freight corridors. The ministry proposes to take up construction of the 2,328 km East-West Corridor between Kolkata and Mumbai at a cost of Rs 1,105.29 billion; the 2,343 km North-South Corridor connecting Delhi and Chennai (Rs 1,044.71 billion); and the 1,114 km East Coast Corridor connecting Kharagpur and Vijayawada (Rs 567.5 billion). As per the preliminary engineering-cum-traffic survey reports, the freight traffic projection for the three new corridors is about 1,300 million tonnes by 2026-27.

It was also announced in the railway budget that the MoR has finalised the standard document for engineering, procurement and construction (EPC) projects. During 2016-17, at least 20 projects will be taken up in the EPC mode and going forward, all works above Rs 3 billion will be awarded through this mode. In addition, IR has set a target of eliminating all unmanned level crossings by constructing rail overbridges/underbridges by 2020.

On the passenger front, IR has announced two new corridors for Mumbai’s suburban train network – the Churchgate-Virar and Chhatrapati Shivaji Terminus-Panvel sections. In addition, work under Phase III of the Mumbai Urban Transport Project will also be undertaken. IR also plans to revive the Delhi ring rail system comprising 21 stations; and undertake the development of suburban corridors in Ahmedabad, Bengaluru, Hyderabad, Chennai and Thiruvananthapuram. Emphasis is also being placed on station redevelopment. IR has already received financial bids for the development of the Habibganj and Bhopal railway stations. A number of other stations are also to be developed on a public-private partnership (PPP) basis.

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Measures to boost freight traffic

The MoR has also made a series of announcements related to streamlining freight operations, rationalising tariff rates, building capacity, and improving the modal share of railways. One of the major changes is the launch of time-tabled trains for freight containers, parcels and special commodities, on a pilot basis. This is expected to improve efficiency in freight operations. Further, the ministry has announced the opening up of the container segment to all traffic, except coal, specified mineral ores and part-loads, during the non-peak season. Container traffic will be granted access to existing terminals/sheds wherever feasible.

The ministry also plans to develop rail-side logistics parks and warehousing facilities through PPPs. It aims to develop 10 goods sheds through the Transport Logistics Company of India during 2016-17.

Another key announcement is the plan to inaugurate India’s first rail auto hub in Chennai. This will help IR capture automobile transportation traffic as well as increase revenue. Meanwhile, the ministry is also exploring the feasibility of opening up the leasing of general purpose wagons to private players.

Improving passenger experience

The MoR has announced several measures for the passenger segment. These include making Wi-Fi services available at 100 stations this year and at another 400 stations in the next two years; improving passenger amenities; beautifying stations at places of religious importance; extending e-catering services from the current 45 stations to all 408 Classes A1 and A stations; selling tickets through hand-held terminals and platform tickets through ticket vending machines; providing an additional 30,000 bio-toilets on trains/stations; and setting up waste segregation and recycling centres.

Focus on energy conservation

The MoR is continuously exploring ways to reduce its energy costs. It aims to achieve annualised savings of Rs 30 billion in the next financial year. To this end, the ministry plans to commission 132.5 MW of wind-based power plants in 2016-17. Tender documents for 50 MW of solar rooftop plants have been issued and a 100 MW solar power facility is currently being set up. Other announcements include the deployment of light-emitting diode lights to help reduce energy consumption in the non-traction area by 10-15 per cent; development of rainwater harvesting facilities; the provision of environment-friendly composite sleepers made of recycled plastic waste; the introduction of automatic coach-washing plants; and conversion of all production units as well as at least one workshop under each zonal railway to green units.

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The way forward

The MoR’s strategy and positive approach are largely based on the recommendations of various committees set up to improve the functioning of IR. In the budget, the MoR laid emphasis on infrastructure expansion, efficiency improvement, increasing revenues and reducing costs. Going forward, private sector investment is expected to grow, safety is likely to improve, and decision-making become faster, eventually leading to higher growth in freight and passenger traffic. However, the challenges related to the Seventh Pay Commission recommendations loom large.