Highlights of the Rail Budget: 2015-16

Rail Budget

The rail budget was presented by Mr. Suresh Prabhu on the back of a few apparent expectations. Firstly there was the expectation of a rail fare hike, as the railway budget was already under strain. Secondly, the total freight subsidy of passenger fares had gone as high as $4 billion. Thirdly, there were expectations on some of the broad announcements made last year like bullet trains, public private partnerships (PPP) and railway infrastructure and safety.

Key Highlights of the Budget

  • In an apparent bid to keep the masses happy, there have been no announcements of fare hikes in this rail budget.
  • The key take-away from the budget was that the Railway Ministry has proposed a total investment outlay of $140 billion for the railways over the next five years, of which $16 billion will happen in 2015-16 itself.
  • This is part of the massive transformation that the railways will go through over the next 10 years and address the problem of under-investment.
  • Funds will be raised through the special purpose vehicle (SPV) route although more details on the modalities and methodology are still awaited.
  • There is a substantial focus on passenger amenities as well as on logistical tweaking.

There are 3 three broad themes that emerged from the Railway budget. It was a passenger friendly budget with no-fare hikes and better amenities for travellers. Secondly, the Rail Budget is high on future investments, setting a new trend for the railways. Lastly, there has been a focus on logistics to improve the performance of railways.

Passenger Friendly:

No fare hike will be the biggest plus for passengers. But there are many other steps taken to become passenger friendly. The railways will be moving towards a paperless ticket model and equip TTEs with hand held devices. This will not only reduce costs substantially but also improve compliance. The funds for passenger amenities has been raised by 67% and an allocation of $1 billion has been made to eliminate 3000 manual crossing to improve rail safety. The massive shift to bio-toilets will be a welcome move for passengers.

Investment oriented:

That was a long standing demand to upgrade the infrastructure of railways. $ 16 billion in 2016 and a total of $140 billion by 2019 is enough to transform the railways altogether. There are also investments planned on rail, signal and wagon infrastructure. A new coastal network is planned and the upgradation will include increasing the movement speed of freight and passengers.

Logistically driven:

The Railway budget has focused on some logistical aspects which can go a long way in making the railways more efficient and meaningful. The Union budget has taken the first step to monetize the land holding of the railways by permitting private companies to set up solar plants on this land. High speed trains and high speed corridors will help improve rail efficiency. Private freight terminals will be permitted. More importantly, a new satellite station approach will be launched for major cities to reduce the congestion in main rail terminals, something which has become a bottleneck in cities like Mumbai, Delhi, Chennai and Bengaluru.

What does it mean for railway stocks that trade in the markets? For the short to medium, there may not be much to cheer. But the major investment plan of $140 billion can be instrumental in filling up the order books of most railway-driven stocks. For the long haul, they may be great stock ideas. Above all, it could be a smart move to productively utilize the savings from cheaper diesel.

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