'Railways have a 5x multiplier effect on the economy'

We hope there shall be more focus on existing projects and their completion rather than new projects.'
'Any new project announcements should be largely for decongesting the existing lines rather than new lines.'

Nandan Chakraborty, Managing Director, Institutional Equity Research, Axis Capital, which recently released a report Railway 360 Degree: ACTUALLY what will happen (.pdf file, external) tells Prasanna D Zore/Rediff.com that the key challenge before Railway Minister Suresh Prabhu will be to hike passenger tariffs, which, he says, 'always faces political resistance.'

The Railway Budget 2016-2017 will be presented in Parliament on February 25, 2016.

IMAGE: Passengers travel on an overcrowded train at Loni in Uttar Pradesh. Photograph: Anindito Mukherjee/Reuters

What role will the Railway Budget play in spearheading the Indian economy?

The Indian Railways are the public face of government (the single largest interface) of India, transporting the equivalent of Australia's population daily or 23 million passengers daily (2 per cent of India's population) and are a key indicator of the government's success for the public.

We hope the Railway Budget reiterates the government's continued commitment to its huge capex (capital expenditure) plan with a focus on decongestion projects.

Decongestion and increased throughput can lead to a significant reduction in logistics cost benefiting all industries.

The Indian Railways have a 5x multiplier effect on the larger economy.

What are the top three headwinds and tailwinds going forward for the Indian Railways?

Headwinds:

a. HR revamp

The Indian Railways employ 1.3 million (13 lakh) people and have 1.4 million (14 lakh) pensioners and thus any change requires to be done with kid gloves.

b. Passenger tariff hikes

Given the shortfall in volumes and the fact that DFC (dedicated freight corridor) once operational shall take away 70 per cent of the Indian Railways' freight revenue, a passenger tariff hike is a must. However, this continues to be highly political.

c. PPP (Public-Private Partnership)

Private capex is essential to achieve the Indian Railways's goals. However, the Indian Railways needs to adopt modern accounting and have an independent regulator in place in order to better align the risk reward ratio in PPP.

Tailwinds:

a. Strong support of the Prime Minister's Office which recognises the strategic importance of the Indian Railways.

b. Long term funding: With Rs 1.5 trillion (approximately $22 billion) of long term money locked in, the Indian Railways can now adopt a corridor approach rather than taking on a large number of small projects and commit themselves to outlays beyond the annual budget, which shall see interest from large well EPC (engineering, procurement and construction) players with far better execution.