The second budgeting exercise of Shri Suresh Prabhu as the Minister of Railways appears to be solidly on the right track towards revitalizing Indian Railways and turning it into a growth engine of the entire Indian economy.
Based on three pillars of ‘Nav Arjan’ – New revenues, ‘Nav Manak’ – New norms and ‘Nav Sanrachna’ – New Structures, this budget brings in some truly innovative solutions while continuing focus on prioritizing investments towards enhancing capacity, reducing operating costs and increasing customer responsiveness.
Railway transportation in India is currently a state monopoly with the Railway Board performing each of the Policy, Regulatory and Management functions.
It is widely acknowledged that for rail transport to develop as a vibrant industry with larger private sector participation, institutional segregation of these three roles is an imperative. The Rail Development Authority as an independent regulator is an excellent step in this direction.
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Additionally, reorganizing IR along business lines will be the ultimate antidote to the endemic departmentalism. Mr. Prabhu has taken this problem head on by announcing setting up cross-functional Directorates in the Railway Board as well as taking 7 critical projects on ‘Mission’ mode.
Innovative revenue streams & cost rationalizations
The share of non-tariff revenues of Indian Railways is less than 5%, which is very low in comparison to its global peers. Being a state monopoly, Mr. Prabhu realizes that increasing tariffs are actually the easiest way to increase revenues.
Therefore, tariffs have been held constant this year, but the focus has shifted to a significant broadbasing of revenue sources such that the non-tariff share of revenues increases to 20 – 30%, in line with global averages.
The focus on increasing advertising revenues is commendable as IR has a huge untapped potential. The announcement of a ‘Railway Display Network’ of 20,000 centrally connected screens across 2,000 stations has the potential to be a game changer in the outdoor advertising industry.
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The plan to monetize data is also one of the most innovative ideas in this budget. IRCTC’s store of customer data is unparalleled in this world. IR’s detailed train operations is also invaluable and can yield amazing insights for which businesses will be willing to pay significant amounts.
It is heartening to note that IR will be saving INR 3,000 Cr within the next financial year due to savings on power purchase costs. This is an extremely encouraging plan and a large part of IR’s annual electricity requirement should come from transparent tariff based bids. As more and more of IR runs on electric traction, this will help in incremental savings.
Listening to the right customer
Freight traffic is IR’s major source of sustenance. Mr. Prabhu has the vision to turn IR into the world’s largest freight carrier and win back its rightful modal share.
Towards this, he has expedited construction of the Dedicated Freight Corridors and it is expected that all civil contracts for the DFCs will be awarded by this FY. More corridors will be constructed which will greatly enhance IR’s freight handling capacity.
Timetabled freight trains, announced for the first time ever, will help IR gather time sensitive customers. Also for the first time, the possibility of long term tariff contracts with key customers will be explored. This will provide tariff predictability to the Industry and help in planning long term capital commitments.
Container freight operations will significantly benefit with the opening up of all traffic (including parcels) excluding coal and a few minerals for containerization.
‘Make in India’
Railways has been the trailblazer in promoting domestic manufacturing under ‘Make in India’. The INR 400 Bn railway locomotive projects, which had been stuck for quite a long time, have finally reached construction stage after the contracts were recently awarded to leading MNCs. IR is pushing this further and is now planning for similar long term supply contract for train sets for Rajdhani and Shatabdi services.
These contracts will spur the local component supply SME ecosystem and help build India as a hub of locomotive and passenger coach manufacturing.
Reorienting Railways towards the Passenger
More services are moving online, helping increase transparency and accountability in IR. Passengers can now book retiring rooms online and even request for cleaning of their coaches online. The use of social media as an interface between the Passenger and the Railway Administration has been extremely well done and has led to a lot of kudos. This helps bring forth problems and makes IR’s job of addressing them easier.
The Railway Budget 2015-16 follows through with the plans announced last year. It is progressive, pragmatic and a path-breaking endeavour signaling that reforms with a focus on tenacious implementation will bring Railways back on track.
The ambitious plan to upgrade the existing network connecting the four metros into a ‘Diamond Quadrilateral’ with train speeds of upto 200 Km/hr is revolutionary as is the plan to have a ‘Bullet Train’ travelling from Mumbai to Ahmedabad in 4 hours.
I look forward to see Indian Railways achieve the targets it has set for itself and become an engine for the country’s growth.
(The views expressed are that Rana Kappor, Managing Director, Yes Bank)