Railway Budget 2016: Fares will have to be hiked to meet revenue target, says India Ratings

 

New Delhi, 26 Feb 2016: Even though Railway Minister Suresh Prabhu did not propose a passenger fare hike in the budget on Thursday, one should expect the politically difficult decision to be taken during the year to meet the revenue target, rating agency India Ratings said.

 

"The rail budget does not envisage an increase in passenger fares or freight, however earnings from various segments are forecast to grow by an average of 10-12%, thus leaving the door open for fare hikes during the year itself," it said in a note.

 

It added that given the difficulties on the fiscal front, "it is unlikely" that the Railways will receive budgetary support to bridge the revenue gap.

 

Its peer Care Ratings said that Prabhu is targeting a 10.2% growth in traffic earnings to Rs 1.17 trillion, primarily on a 12.4% growth in passenger fare earnings at Rs 51,012 crore.

 

Five major states are going to polls by April-May and the fare hike may happen post this. However, both the agencies did not allude to this in their prediction.

 

"Given that there has been no change in fares, it may be expected that the number of passenger kms would increase during the year," it said, noting that Prabhu is also targeting to increase the earning per passenger km by 5-45 paise in FY17.

 

Care said the assumption made by Prabhu in keeping the rates and fares unchanged is a higher revenue collection through increased economic activity but added that in FY16 as well, a similar effort was undertaken but it did not materialise due to tepid growth.

 

India Ratings said the announcements on upgrading the customer experience are achievable, adding the moderating the planned spending outlay to 20% growth in FY17 from 52% in FY16 will ease the burden on the fiscal through an almost unchanged gross budgetary support.

 

Additionally, the proposed asset monetisation programme will also help reduce the pressure on the government fiscal, it added.

 

However, Care said the deterioration in the operating ratio to 92% from 90.5% will restrict capital expenditure.

 

It said information technology services, telecom and engineering sectors can benefit from the announcements on the customer services side in the budget.

 

Commissioning of more broad gauge lines will help the steel, aluminium cables and electrical equipment sectors, while the target to raise Rs 20,000 crore from the market will help deepen the corporate bond market, it said.