labels: industry - general, economy - general, railways
Rail Budget 2006-07: Railways reap the benefits of volume growth and better managementnews
24 February 2006

Often described as an oddball and a symbol of inefficiency and political corruption, Lalu Prasad Yadav is actually turning out to be one of the most successful ministers in the history of the Indian Railways. In the last two years under him, the Indian Railways has set records in all operational parameters and has become highly profitable.

Presenting the railway budget for the year 2006-07, the minister said fund balance or cash reserves has reached Rs11,000 crore as compared to just Rs350 crore during the year 2001. Internal net cash flows before dividend to the government during the current year 2005-06 is expected to be close to Rs11,000 crore. This is projected to grow to Rs14,293 crore during 2006-07 as per the budget estimates.

A net cash generation of Rs14,293 crore or over $3 billion per year is an achievement which the country's best and largest private sector groups like Reliance and Tatas would be proud of. How is Indian Railways, always ridiculed for inefficiency, managing this kind of profitability?

Yadav is indeed a very lucky person to occupy the railway ministry at the best of times. To be fair to all the gentlemen and the lady who handled the railways portfolio earlier, the economy then was merely limping along all those years. Growth was never consistent unlike the last three years when GDP growth has been exceeding 7.5 per cent annually.

An economy growing in excess of 7.5 per cent consistently would see significant growth in the transportation business. Be it in airlines, trucking or railways, the demand for both passenger and freight movement would rise much faster than the GDP growth rate.

India has also been witnessing this phenomenon over the last few years. The road transport business has expanded by leaps and bounds, evident from the spectacular increase in commercial vehicle sales. India is the fastest-growing major airline market in the world with new airlines being launched at frequent intervals.

This growth had not been evident in the rail transport segment, till the last couple of years. For the railways to grow and become profitable there should be an increase in freight volumes. Freight is the bread and butter of railways as passenger movement is more an incidental operation for the Indian Railways from a business perspective and a socio-economic responsaibility from a political one.

The road transport sector has been steadily increasing its share of freight movement for the past few decades at the cost of railways. Businesses generally prefer road transport because of its greater flexibility to provide door-to-door pick-up and delivery, the efficiency of a private sector (largely entrepreneurial) operation and accountability that is usually invisible outside the bureaucratic railway system.

To make matters worse, the railways kept on increasing freight rates every year to subsidise the politically sensitive passenger tariffs.

This mindset of treating freight movement as a cash cow has changed considerably over the last few years at the railway ministry. The freight rates have not seen any major hikes in the last few years and were left untouched in the budget for 2005-06.

Just keeping the freight rates steady would not have helped much unless the railways managed to improve the efficiency of its operations. This is where full credit should be given to Yadav, and his immediate predecessor in the previous government, for giving a free hand to railway officials to improve operational efficiency. In the process, he has proven that he is an able administrator in sharp contrast to the popular perception about him.

Railway Budget 2006-07 Highlights

  • Dedicated multimodal high axle load freight corridor with computerised control on Western and Eastern routes at an estimated cost of Rs22,000 crore.
  • Container freight trains by private companies to start next month. Expect double-stack high capacity container trains.
  • No increase in passenger or freight rates
  • Dynamic pricing for both passenger and freight rates. Rates to vary depending on demand. Bulk and loyalty discounts on freight.
  • Freight rates for petrol and diesel reduced by 8 per cent. This would give the government more leeway in managing retail fuel prices without any major hikes.
  • Reduction in AC class passenger fares between 10-18 per cent to take on competition from low cost airlines.
  • New air-conditioned low fare trains top be launched on a trial basis in 4 routes. Fares to be 25 per cent cheaper than current AC III Tier rates.
  • 55 new trains to be launched during the next financial year, including 14 new daily trains.
  • 1100 km of new lines in 14 sections to be completed next year. Doubling of lines for 435 km.
  • Survey for 23 new lines would be taken up during the year
  • Gross revenues of Rs59,978 crore and total operating expenses of Rs38,300 crore for 2006-07 resulting in a surplus of Rs14,293 crore after providing for pensions and depreciation, but before dividend.
  • A number of initiatives to provide more facilities at stations and inside trains. Expect better designed stations, ATM's at stations, automated ticketing machines, modern coaches etc.


also see : Railway minister's speech
Railway Budget 2006-2007

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Rail Budget 2006-07: Railways reap the benefits of volume growth and better management