3 reasons why Suresh Prabhu’s Rail Budget failed to impress the stock markets

Railway Minister Suresh Prabhu’s big bang budget failed to impress the critics and the stock markets alike. While maintaining a safe stand on fares, choosing not to hike them any further, he failed to do what many in the industry were keenly watching out for—creating a reform path that will take Indian Railways, the country’s largest employer, out of its current path of self-destruction.

While Prabhu, early in his budget speech mentioned that a rot in the system has been responsible for the chronic under-investment in infrastructure, he said, “I am convinced we can deliver. I believe we can ensure the rebirth of Indian Railways.”

However, the announcements barely managed to create any positive stir. The markets were expecting a hike in passenger fares, but were disappointed when Prabhu decided to maintain the status-quo, ensuring that the railways will continue to lose an average Rs 26,000 crore every year, which is then cross-subsidized by freight fares—and this is the highest in the world.

The second and the largest point of concern remained the method of raising capital. While the Railway Minister announced a total capital expenditure of Rs 8.5 lakh crore over the next five years, including 77 new train projects worth over Rs 96,000 crore, he didn’t once mention a clear strategy to raise the amount. “The money will be raised via several SPVs and partnerships with public and private sector players,’ said Prabhu without really outlining how the SPVs will function and the terms for setting up the partnerships.

The third point of concern, also contributing to sensex tumbling almost 300 points before recovering slightly, has been the government’s plans to monetize existing assets without selling them. While one of the top priorities of the previous government was to sell unused railway assets, Prabhu has always been an advocate of monetizing them via further investments. Experts already fear that market borrowing by the Railways will go up by almost 50%, which could be a major cause of concern for Suresh Prabhu’s plans to tame the operating ratio at 88.5% as opposed to 91.8% in FY15.

Image: Indiatimes