Railway Budget 2011 – Dedicated Freight Corridor Project

The Indian Railways is facing a severe financial crunch. Mamata Banerjee has attributed it to the change in accounting practices by Lalu Prasad Yadav, which they have reversed. Moreover, the costs on salaries have invreased due to the sixth pay commission. THE Dedicated Freight Corridor project (DFC) is facing the wrath of the financial crunch. It was announced in 2005 to create dedicated corridors for freight that would help Indian trains, both passenger and freight travel at their maximum speeds. It was expected to complete in 2012, but looking at the current scenario, it does not seem possible.

(Read about the causes of Indian Railways financial crunch here)

The consequences of this financial crunch on the DFC project

  • The Dedicated Freight Corridor (DFC) project, is expected to cost around Rs. 77,000 crore. This includes the costs of borrowing and inflation.
  • The DFC project is being banked on heavily to remove the congestion in the rail network and allow trains to move at the maximum 140 Kmph.
  • The DFC project is important because a higher speed on both passenger and freight trains means that the railways has a competitive advantage over Airways and Roadways.
  • The DFC project, which was announced in 2005 (set to complete in 2012) has not yet taken off due to land acquisition problems and alignment of railway lines.
  • It was to connect the West (Mumbai) with the east (Kolkatta) including North (Delhi) with dedicated tracks.

Forbes reports that “just as the decks had been cleared for the Railways — after it made substantial progress in tying up funds from the World Bank and the Japan Bank for International Cooperation — to start funding the project, it has become cash-strapped.

ET reports, “To attract more resources, the railway minister is likely to set the pitch for public-private partnerships, or PPP, even though most of the schemes announced during this fiscal have not elicited much interest from corporates.”

When and how did the Indian Railways finances become a controversial matter ?

In 2009 Mamta Banerjee presented a white paper in the parliament. It said

  • Tthe cumulative cash surplus before dividend (2004-09) would have been just Rs. 62,363 crore instead of the previously claimed Rs. 88,669 crore, but for certain changes made in the accounting system.
  • The Railways under the Lalu administration used to show depreciation, interest on deposits and lease charges as part of the surplus.
  • In 2007-08, these the 3 heads (depreciation, interest on deposits and lease charges) accounted for around Rs. 8,400 crore of the Rs. 25,000 crore shown as surplus.
  • The new administration led by Mamata Banerjee has since the reversed this approach.

There are significant doubts being shown on the availability of cash resources for projects such as DFC that need around Rs 4000 crore per anum.

A solution being suggested for the DFC project is that the Indian Railways dilute its equity in the project and make it a public-private partnership.

Forbes reports , “Railway insiders are not overly worried about the financial situation, though they do admit that it needs substantial government assistance to nudge large projects forward. The government had provided a gross budget support (GBS) of about Rs. 15,800 crore this fiscal… ministry had sought twice the amount for 2011-12

This Railways budget will have to find out concrete solutions to the grave problems concerning Indian Railways.


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One Response to Railway Budget 2011 – Dedicated Freight Corridor Project

  1. Pingback: Rail Budget 2011 : The financial issues « Railway Budget 2011 : Speak India

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