5 key takeaways from the Rail Budget

Last Updated: Wed, Jul 09, 2014 13:23 hrs

The way markets have reacted to the rail budget gives an indication of its possible reaction to the finance budget which will be presented in two days. Though the market started falling even before the budget speech began, it picked up pace post the presentation of the budget speech by Railway Minister Sadananda Gowda.
Markets have moved higher in anticipation of a series of measures which can revive the economy. The 'railway stocks' that were expected to gain from the budget have fallen the most. So is the railway budget that reflects the policies of Narendra Modi, and the subsequent reaction in the budget an indication of reality check. The answer is both 'Yes' and 'No'.

Those looking for quick fix solutions have reasons to be disheartened with the budget.There were no populist announcements of new routes or huge capital expenditure which were expected by many observers. The measures announced are all long term that carries the perennial implementation risk. There is nothing revolutionary in the budget however, there are enough signs of it being an evolutionary one.
Here are five key takeaways from the railway budget that signals hope for the sector and the economy.
1. Implementation is the key: As the railway minister pointed out, only one project out of the 99 projects announced by the previous government has achieved completion. The focus is thus on completion of viable projects before announcing new and populist ones. In order to do so, the railway minister has proposed to set up a Project Management Group at the level of the Railway Board. Similarly, to expedite the projects at the ground level, a Project Monitoring and Coordination Group consisting of officials of State Government, Railways and professionals will be set up. In short, the focus rightly has moved from mere announcements to implementation. Gowda said that the ministry is prioritising timelines to finish pending projects which include those which will connect the ports as well as the coal mines to the user industries.
2. Transparency needed to attract investment: Transparency or rather a lack of it, was one of the biggest reasons why none of the large Indian corporates ventured into this industry. The minister while announcing Public Private Partnership (PPP) and Foreign Direct Investment(FDI) in the sector focused on transparency to protect the stakeholder's interest. Gowda said that Transparency in administration, execution of projects and procurement will be given top priority. E-procurement will be made compulsory for procurements worth Rs 25 lakhs and above.
3. Regaining market share: Trying to get back its share of traffic from roads, the railway minister has proposed to modernise its logistic operations by setting up Logistic Parks. These parks will take care of the entire supply chain from warehousing, packaging, labelling, distribution, door-to-door delivery and consignment tracking. Currently on 31 per cent of freight is carried by Indian railways as compared to its peak level of 85 per cent in the 1960s.
4. Triggering capital infusion: Without making any big announcement the railway minister has proposed it's highest ever plan outlay for railways. A plan outlay of Rs 65,445 crore has been suggested with a budgetary support of over Rs 30,000 crore. Bulk of the future railway project will be financed through a PPP route. The Diamond Quadrilateral project, connecting the metro cities will alone need Rs nine lakh crore. The minister said railways need Rs 50,000 crore in investment alone for the next ten years.
5. Restructuring: One of the boldest moves made by the railway minister is in restructuring the railways, which starts by restructuring the railway board. Experts had pointed out that the centralised nature of the railways is one of the biggest reason for its woes. Time bound decision making and accountability can spur a series of changes in the sector that can drive growth and improve efficiency.
The budget announced by the railway minister has nothing that will improve the health of the sector overnight. However, through his announcements and proposals he has steered the sector on a growth path.

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