Finance Minister Nirmala Sitharaman laid a special emphasis on infrastructure and announced a substantial increase in capital expenditure for some sectors in the Union Budget 2023-24. The biggest increase in budgetary allocation has been made for the Indian Railways, at ₹2.4 lakh crore. This is the highest ever and nine times the allocation made in 2013-14, the year before the Modi government assumed charge at the Centre.
While the allocation has seen a steep increase, sector experts worry over insignificant improvement in internal resource generation, mounting borrowings and the inability of the Railways to increase its modal share in freight carriage. Freight accounts for 67 paise of every rupee earned by the national transporter and freight earnings cross-subsidise passenger earnings – each passenger is carried at a loss by the Railways due to its fare structure.
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Railways Minister Ashwini Vaishanaw welcomed the “record” allocation for the sector, saying this would fulfil the longstanding infrastructure deficit of the country’s biggest transporter. The minister said that the enhanced allocation would be used to finish redevelopment of 1,275 railway stations and speed up the indigenous manufacturing of Vande Bharat trains.
The ₹2.4 lakh crore for Railways for 2023-24 is a 75 per cent increase from the ₹137,100 crore allocated as Budget Estimates (BE) for the current fiscal. But Sudhanshu Mani, retired GM at Indian Railways, pointed out that while this time, the majority of capex is envisaged through budgetary support (instead of a heavy reliance on borrowings, as in earlier years), “cumulative borrowings of the Railways have mounted to ₹4 lakh crore. There is insignificant internal resource generation – it is improving but still is nowhere near what it should be.”
In the current fiscal, while the Railways managed to surpass its revenue generation target from passengers in the revised estimates, the target for freight earnings has remained unchanged. In 2022-23, revised passenger earnings estimate is pegged at ₹64,000 crore (₹58,500 crore) while freight earning RE remains at the BE level of ₹165,000 crore. After accounting for all expenses, the Railways’ net revenue in the current fiscal as per revised estimates would be a mere ₹2,392.77 crore, a fraction of its capex and less than half the targeted revenue for the year. For 2023-24, the target has been set even lower at just ₹2,210 crore.
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In 2023-24, the Extra Budgetary Resources (mainly borrowings) are envisaged lower at ₹17,000 crore next fiscal from ₹81,700 crore in 2022-23. In terms of total expenditure, the envisaged increase in FY24 is over 9 per cent at ₹5,19,990 crore (₹4,73,440 crore).
Mani says that a comparison of earnings and expenditure on a three-year CAGR basis with 2019-20 (a largely non-COVID year but a bad one from performance standpoint) shows 9 to 10 per cent increase in earnings and 6 per cent in working expenditure. But compared to 2018-19, the CAGR for earnings would be barely over 5 per cent and expenditure close to 5 per cent.
“In an economy growing at the rate of 6 to 7 per cent, one would expect the Railways’ growth of revenue to be around 13-14 per cent. That is not happening. If we discount the unexpected surge in coal loading starting 2021-end, the picture would be gloomier; the rise in coal loading may continue to some extent in the next fiscal too but in the long term it would not and Indian Railways’ performance is not likely to be very delightful.”
Allocation versus utilisation:
Over the last few years, there has been a significant increase in the Railways’ capex year on year, from just ₹45,980 crore annually, between 2009 and 2014 to ₹2,40,000 crore in FY24. In 2022-23, capex was pegged at ₹2,45,800 crore, of which nearly 56 per cent was to come from budgetary support and 41 per cent from EBR.
Big ticket railway projects which require enhanced capex year on year include massive electrification of the railway network – the target is 100 per cent electrification by December 2023, upgrading Delhi-Mumbai and Delhi-Kolkata corridors to 160 kmph – and production of 400 Vande Bharat trains in three years, more rolling stock investments, laying additional tracks etc.
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But a Parliamentary standing committee pointed out last month that the Indian Railways has been unable to utilise the capex proposed at the BE stage and even the lowered amount of capex at the revised estimates (RE) stage has remained unused, year on year. Actual utilisation against RE figures was 91 per cent in 2018-19 and under 97 per cent thereafter.
For one reason or another, the Indian Railways has been perpetually falling short of internal revenue generation targets year on year. For many years, its pet peeve was rising staff costs: India’s single largest employer has about 12.5 lakh employees on its books and 15.5 lakh former railway employees. The pension cost itself works out to be more than ₹50,000 crore every year, which is about 25 per cent of the railway’s earnings, the former chairman of the Railway Board, V K Yadav had once said. Staff wages and pension together account for nearly two-thirds of railways’ total expenditure. Now, post-COVID-19 disruption, the Railways has added the COVID-19 impact to its pleas about decline in revenue generation.
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In its submission before the parliamentary standing committee, which was examining demand for grants for 2022-23, the Railways had said earlier: “Expecting that 2022-23 would be a normal year, free from COVID-19 impact with passenger traffic returning to pre-COVID level with reasonable growth and based on highest ever freight loading target of 1475 MT, the Indian Railways has estimated an internal resource generation of ₹7,360 crore in BE 2022-23.” The RE was put at a mere ₹2,393 crore.
Freight earnings have continued to cross subsidise passenger earnings for years, derailing the Indian Railways’ internal resource generation maths. This skewed fare policy has meant uncompetitive and high freight rates even as the Railways loses money on each passenger. This ‘social service’ obligation of the national transporter has been around ₹50,000 crore in some years. Hiking passenger fares is a political call; while the Indian Railways has hiked fares across categories indirectly in the recent years, there has been no direct fare increase to reduce the cross subsidisation. Indirect hikes include introduction of flexi fares in some trains, a significant reduction in the number of categories of passengers allowed concessions, hike in rates for platform tickets etc.
The upgraded version of India’s first indigenously built, semi-high speed train Vande Bharat has begun to operate across several routes since November last year. Prime Minister Narendra Modi flagged off the eighth such express train last month, between Secunderabad and Vishakhapatnam. Vande Bharat 2.0, the latest version of this train, is equipped with more advancements and improved features than the initial trains. It can reach 100 kilometres per hour in just 52 seconds and has a maximum speed of 180 kilometres per hour. The Vande Bharat Express 2.0 weighs less than the earlier version, has Wi-Fi content on-demand facility, more efficient air conditioning for reducing emissions and an indigenously developed Train Collision Avoidance System – KAVACH.
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The target set out in the FY23 Budget was to manufacture 400 Vande Bharat trains in three years and minister Vaishnav said that after meg capex push in the 2023-24 Budget, production of this train would be expedited. Apart from ICF Chennai, factories in Sonipat, Latur and Rae Bareli will also start Vande Bharat production. Sector experts caution that the up to 20 per cent higher fare on these trains could deter some passengers and the production target was too ambitious.