Railway Budget 2011- Causes for Indian Rail financial crisis

Dedicated Freight Corridors

Dedicated Freight Corridors

The Indian Railways in facing a financial crisis. Quite unlike the previous Indian Railways Minister Lalu Prasad yadav, who announced a surplus of Rs 25,000 crore (2008), this year things are going to be quite different.

Total revenues from passenger and freight this year for Indian Railways has been around Rs 92,000 crore. Forbes says that it could fall short by Rs 4000 crore.

The Indian Railways is struggling with the financial burden of the sixth pay commission amounting to Rs 55,000 crore along with  ther financial woes. The reasons for the massive depletion of finances of Indian Railways have been many, but major of them are as follows.

Causes of financial crunch

  • Slow growth of freight business.
  • Decrease in passenger traffic
  • Increase in fuel prices (It has inflated its expenses by approximately Rs 1000 crore.
  • Reduced investment by private freight carriers (They have hold up Rs 2000 crore since Railways is not allowing to carry them more freight. They were given licenses during Lalu Prasad Yadav’s tenure as the Railway Minister)
  • Forbes says that this explains why the incremental freight loading target for 2010-11 is only 52 million tonnes compared to 60.3 million tonnes in 2009-10.Several other public-private projects including modernisation of railway stations have not taken off due to a paucity of funds.
  • In 2007-08, the Indian Railways had a self generated fund balance of approximately Rs. 19,700 crore. This was wiped out due to the costs on salary and dividends to the government in the year 2009-2010.

The consequences of this financial crunch

  • 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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8 Responses to Railway Budget 2011- Causes for Indian Rail financial crisis

  1. Pingback: Railway Budget 2011 – Dedicated Freight Corridor Project « Speak India

  2. Pingback: Anonymous

  3. Rajan says:

    Recent history of the world…. It can be repeated anywhere in the world….

    Hosni Mubaraque was elected as president, twice by the Egyptans in the past. Now the same people rejected his rule. Railway Minister of India, should work for India, not for any particular state….

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

  5. Pingback: Union Budget 2011 : A precursor « Railway Budget 2011 : Speak India

  6. subhasis Banerjee says:

    I agree with u rajan
    and i also request to Railway Minister of India please look after the railway freight of iron ore loading.
    and start the WIS system.

  7. Pingback: POWER: KEC India Transmission Contract In Brazil | Iamsra's Blog

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