Railway Budget 2013-14 - CARE

The Railway Budget for 2013-14, while emphasizing on its priority to increase rail safety and security, also seeks to raise investment in modernization and up gradation of rail infrastructure. The rail Budget has also proposed a plan outlay of Rs.63, 363 crore for the railways, the highest ever outlay by far. This in a way is persistence in the thrust of Railways to improve structures and systems, and hence signifies 'continuity' in ideology. This is understandable given that the area to be covered is large, given the entire perimeter of the railways, and there can only be small efforts put in every year to improve the overall system of the department. The Railway Minister has envisaged 4 focus areas for the coming year - safety, consolidation, passenger amenities and fiscal discipline.

Highlights

- Increase in freight charges by approximately 5%
- 67 new Express trains to be introduced
- 26 new passenger services to be introduced
- Elimination of 10,797 level crossing during 12th Plan
- Setting up of Railway Energy Management Company (REMC) to harness potential of solar and wind energy
- Highest ever plan outlay of Rs 63,363 crore that would be financed through

* Gross budgetary support - Rs 26,000 crore
* Railway safety fund - Rs 2,000 crore
* Internal resources - Rs 14,260 crore
* Extra budgetary resources - Rs 21,103 crore, which includes market borrowing of Rs 15,103 crore and PPP of Rs 6,000 crore

- 500 km new lines, 750 km doubling, 450 km gauge conversion targeted in FY14

Financial Performance FY13

- Loading target reduced by 18MT to 1,007MT
- Gross traffic receipts revised to Rs 12,680 crore, lower by Rs 6,872 crore over budget estimates
- Working expenses retained at BE level of Rs 84,000 crore
- Pension payments increased by Rs 1,500 crore to Rs 20,000 crore
- Current dividend liability to be fully discharged.
- Excess of receipts over expenditure of Rs 10,409 crore as against the budget amount of Rs 15,557 crore
- Operating ratio of 88.8% as compared to 94.9% in FY12

Budget Estimates FY14

- Freight load of 1,047MT
- Passenger growth pegged at 5.2%
- Gross receipts - Rs 1,43,742 crore
- Ordinary Working Expenses - Rs 96,500 crore
- Dividend payment estimated at Rs 6,249 crore
- Operating ratio estimated at 87.8%
- Fund balance expected to exceed Rs 12,000 crore

Implications

- The highest ever allocation of Rs 63,363 crore, would be used in building strong infrastructure. This will mean several initiatives in terms of safety enhancement, additional connectivity, railways tracks, technological improvements etc.

- This could have a positive impact on various sectors such as cement, steel, engineering, construction, etc. these are the sectors which typically have backward linkages with any such initiatives.

- The increase in freight rates which would be linked with the diesel price movements would add to the burden of price of products which use railways for transportation purposes. Given that the Finance Ministry has made it clear that the price of diesel will be adjusted upwards on a regular basis, the impact would tend to be escalated over the year.

* This would be inflationary as the cost of freight traffic would go up which will feed into the prices of commodities. It will affect raw materials, finished goods and agricultural products in particular. The last is serious because the food inflation rate is already high at 19% plus, and such increase in transport costs will keep it at elevated levels.

* There is unlikely to be migration of traffic to roads as road freight charges would also be typically going upwards when the price of diesel goes up. It should be remembered that when transport costs go up, they would feed into the prices of all commodities and hence the impact would be significant.

- There will be some concern on the attainment of the revenue targets given that it is based more on higher traffic on both passenger and freight which is based largely on the state of the economy, which needs a boost to justify these targets. While no GDP growth number has been specified in the Budget, it is assumed that the growth in 2013-14 would be upwards of 6% - 6.5% to justify these revenue flows. For this to happen significant changes have to take place in the investment environment, for which the government may have to do a lot on the policy front to enable the same.

- The goal of operating ratio coming down to 87.8% would be strained in case of the revenue target not being attained. This is one of the efficiency parameters for the Railways and it has been assumed that notwithstanding the enhanced spending on various schemes, the operating ratio would improve.

- Market borrowing of Rs 15,103 crore during FY14, when compared with Rs 5.7 lakh crore of the central government borrowing targeted for this fiscal, seems to be a small amount.

* This would also mean that we may expect additional bonds to be floated in the market this year. The pricing of the same and the tax benefits to be conferred would be critical for this fructification.

Source : Equity Bulls

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