Demand for freight transport has helped railway minister Lalu Prasad Yadav to turn in yet another dream performance and also to announce ambitious projects. Rex Mathew looks at how the railway budget impacts industry.

Lalu Prasd Yadav has ensured that when he goes down in history, it certainly will not be for the mess in Bihar, but rather the resurrection of the behemoth Indian Railways as an admirably profitable central government undertaking, one that Indians can justifiably go back to being proud of.

The favourable economic environment has helped him to shake-off the stigma and grime of Bihar to reposition himself as a turnaround specialist and become the toast of the dons of India''s premier management schools. Yadav seized the initiative, which a growing economy presented, to break from the past by giving up the ritualistic raising of passenger and freight charges to generate finances. Resources are now being raised through internal efficiencies, even as the organisation becomes more competitive and consumer-friendly. Buoyed by the results, the maverick railway minister has now outlined grander, though sorely needed projects.

Yadav has been announcing a slew of mega projects in succeassion, fully confident that Indian Railway's bulging fund balance would suffice to finance all of them. If successfully implemented, these new initiatives would substantially enhance the capabilities of the Indian Railways and go a long way in improving the country''s transport infrastructure.

Performance and investment outlays The sustained economic growth momentum has helped the railway to exceed its own targets set for the current financial year. The proactive policies of the railway ministry over the past several years have helped in maintaining the railway''s share in overall freight movement. Gross traffic revenues for the current financial year are forecast to rise 17 per cent, helped by a 17 per cent increase in freight revenues and 14 per cent growth in passenger revenues.

2006-07 Performance Estimates Figures in Rs. Crore
Freight Revenues	42,299
Passenger Revenues	17,400
Other Revenues	3,421
Gross Traffic Revenues	63,120
Net Revenues	14,870
Cash Surplus before dividend	20,000
Year-end fund balance	16,000
Operating Ratio (%)	78.7
Return on Capital (%)	20

An annual investment plan outlay of Rs31,000 crore has been announced for the next financial year. Of this, Rs17,323 crore would come from internal generation, Rs7,611 crore from general revenues and the balance would be extra-budgetary resources. The railway would add 200 each of new diesel and electric engines and 11,000 new wagons during the next financial year.

Freight rate reduction The reduction in freight rates of diesel and petrol by 5 per cent would help the oil marketing companies. Freight rates of iron ore, limestone and dolomite have been lowered by 6 per cent which would help companies in the cement and steel sectors. A new commodity-based tariff policy has been announced as an exclusive package for the cement industry.

The empty flow discount for both open and closed wagons has been increased to 30 per cent from the current 20 per cent even during peak season. The discount for incremental loading on open wagons in empty flow direction for commodities like cement, fertilisers and wheat has been increased to up to 40 per cent. Cement and fertiliser companies would benefit from these discounts.

The railway has set an aggressive target of 785 million tonnes of freight loading for the next financial year. The railway would push for a higher share of steel and cement transport and is targeting volumes of 200 million tonnes each from steel and cement by the year 2011-12. For container traffic, the target has been set at 100 million tonnes for 2011-12. To achieve this, railway is planning to introduce triple-stack container trains on diesel routes and double-stack trains on electrified routes.

These initiatives would help a host of user industries like steel, cement and large commodity exporters by bringing down the cost of inland transport. If the railway manages to achieve its ambitious targets for freight movement, it may have a modest dampening effect on demand for heavy commercial vehicles.

Passenger fare reduction The railway is taking competition from low-cost airlines head on and has announced a further reduction in upper class fares. It has also decided to adopt a key strategy of low-cost airlines and would introduce a variable fare scheme.

Discounts in percentage	Busy Season	Lean Season
AC First	3	6
AC 2-Tier	2	4
AC-3 Tier (81 berths)	4	8
AC-3 Tier (64 berths)	Nil	Nil
AC CC (102 seats)	4	8
New Sleeper Coaches (84 berths)	4	4
Sleeper Class (72 berths)	Nil	Nil

Lower railway passenger fares would force all the domestic airlines, especially the budget carriers, to offer more competitive fares. The budget carriers have successfully attracted a number of upper class railway passengers in recent years through very low fares. But this pricing strategy has affected the financial health of most domestic airline companies and even lower railway fares would force these airlines to continue with their low fare strategy.

New Initiatives Construction of the western and eastern dedicated freight corridors would commence next financial year and would be completed within five years. The western corridor would be between Mumbai and Delhi while the eastern corridor would connect Kolkata with Ludhiana.

The two projects are expected to cost a total of Rs30,000 crore and would substantially improve the speeds and loading capacities of freight trains on these routes. Pre-feasibility studies for the east-west, east-south, north-south and south-south corridors would be initiated during the next financial year.

The railway is also planning to construct high-speed passenger corridors, which would allow speeds of up to 300 km / hr. Such a corridor was mooted a couple of years back, but was dropped later to focus on improving the existing network.