Railway Budget

Railway Budget 2013-14 - No passenger fare hikes; freight tariff likely to increase by about 5% - Angel Broking

Posted On : 2013-02-27 19:36:57( TIMEZONE : IST )

Railway Budget 2013-14 - No passenger fare hikes; freight tariff likely to increase by about 5% - Angel Broking

The Railway Budget 2013-14 has focused on fiscal discipline with no major capex related increases. Passenger fares have not been hiked in the budget as increase in this segment has been effected just recently (in January 2013), which is to garner Rs. 6,600cr for the railways in FY2014. Freight tariffs have been effectively hiked in the Budget by about 5.0% to adjust for the rise in fuel cost. The fuel bill is estimated to increase by Rs. 5,100cr in FY2014 due to upward revision in HSD oil prices and electricity tariffs.

The Railway Minister has proposed to segregate the fuel component in tariffs such that the fuel adjustment component (FAC) adjusts to changes in fuel costs, and has proposed to implement this revision in freight tariff from April 1, 2013. Since the FAC is applicable only on freight rates and no additional hike in passenger fares has been proposed, the railways would absorb the impact of the expected burden of Rs. 850cr, on this account.

Moreover, the railways have proposed increase in supplementary charges for super fast trains, reservation fees, clerkage charges, cancellation charges and tatkal charges. However the enhanced reservation fee has been abolished to simplify the fee structure.

Key targets and achievements

Losses on passenger train operations increased to Rs. 24,600cr as compared to Rs. 22,500 in the previous year. The target of 700km of new lines in FY2013 has been scaled down drastically to 470km owing to inadequate resources. In FY2014 the railways is targeting 500km of new lines. This is lower than the 709km and 727km of new lines in FY2011 and FY2012 respectively.

As far as the dedicated freight corridor is concerned, land acquisition for about 2,800km of the eastern and western freight corridors is almost complete and 343km section of the eastern corridor has already been awarded. The railways expects construction on the two corridors to start and cover upto 1,500km by the end of 2013-14. Through partnership projects with ports, large mines, industry etc, the railways expects an investment of Rs. 9,000cr, including Rs. 3,800cr for port connectivity projects, Rs. 4,000cr for coal mine connectivity and Rs. 800cr for iron ore mines connectivity improvements.

The operating ratio is slated to be brought down to 87.8% in FY2014 from the revised estimate of 88.8% in FY2013. The deceleration in the operating ratio from the 95.0% level in FY2012 suggests an improvement in the financial health of the railways.

Passenger segment earnings are budgeted to increase robustly by 29.9% in FY2014 over the previous year's estimates while earnings from freight are budgeted to increase by a more modest 8.8% during FY2014. We believe that the FY2014 budgeted estimates of passenger segment earnings are optimistic, particularly as even the revised estimate for FY2013 indicates a decline of almost 10.0% over the budgeted estimate in that period. It is thus likely overstating the gross traffic receipts (FY2014 BE of Rs. 143,742cr) to an extent.

For FY2014, the highest ever plan outlay of Rs. 63,363cr has been budgeted and it is likely to be financed mainly through gross budgetary support of Rs. 26,000cr. For the 12th Plan outlay (estimated at Rs. 5.19lakh cr), the target for internal resources and public private partnerships (PPP) appears ambitious. In the first year of the Plan period, the railways has allocated merely Rs. 10,000cr of its internal resources and the remaining Rs. 95,000cr are expected to be allocated in the next four years. In addition, the Railway Minister has himself contended that PPPs are a challenging area for the railways and thus far limited success has been achieved through this route. Despite the same, Rs. 1.0lakh cr is expected from PPP in the Plan period.


Overall, we believe that the present budget is decent and on the 'right track' since it emphasizes financial sustainability. This is also a positive signal from the government regarding its focus on fiscal discipline in the run up to the Union Budget. For the railways, the proposal for setting up of Railway Tariff Regulatory Authority, still at inter-ministerial consultation stage, is a positive and we believe its implementation would depoliticize railway tariff.

Source : Equity Bulls