A PROJECT OF MANAGERIAL ECONOMICS & BUSINESS ENVIRONMENT ON RAILWAY BUDGET 2014-15

SUBMITTED TO:- FROM :- Dr. Ritika Gugnani PAVAN KUMAR GAUTAM ROLL NO. PGFA 1431 SECTION- A

CONTENTS History of Railway Indian Railway Contribution of Railway to Indian Economy Issues and Challenges Railway Budget Sources of Earnings & Expenditure Analysis & Conclusion Bibliography HISTORY OF RAILWAYThe first railway was started between Stockholm and Darlington Railway in 1825 it is recognised asthe starting of railway age, because this was the first time when railway used steam locomotive and iron rails to run a train. With passengers of 38 and goods a train ran between Stockton and Darlington. The railway line actually commenced in 1821, but it took 4 years to complete construction.INDIAN RAILWAYThe first proposal for construction of railways in India was presented in 1844 by East India Company in London by, R.McDonald Stephenson, & Great Indian Peninsula Railway Company. The Railway Age dawned in India on 16th. April 1853, when the first train ran from Bombay to Thana, a distance of 21miles(33.81 Km.)Railway act 1890 was updated and removed by new railway Act 1989. According to this Act Indian Railway was divided into 16 zones.Those 16 zones are 1.southern2.central 3. Western 4. Eastern 5. Northern 6. North eastern 7. South eastern 8.south central 9. Northeast frontier 10. East central 11.north western 12.East coast 13.north central 14.south east central 15.south western 16. West centralIndian Railway is owned and operated by the Government of India through the Ministry of Railways. Government of India enjoys the monopoly of controlling one of the largest transportation system of the world. It is one of the world's largest railway networks comprising 115,000km (71,000mi) of track over a route of 65,436km (40,660mi) and 7,172 stations. IR employs about 1.6 million people. It carries over 30 million passengers & 1.3 million tones of freight everyday. The longest platform in the world is at Kharagpur which is 2,733 ft. in length. Railway Station which has all the Three Gauges is Siliguri Railway Station. One of the busiest railway station is lucknow. Indian Railway has the world's fourth largest railway network after those of the United States, Russia and China.

CONTRIBUTION OF RAILWAY IN INDIAN ECONOMY

The Indian Railways contributes to India's economic development, accounting for about one per cent of the GNP and it is the backbone of freight transportation. It alone provides for six per cent of the total employment in the organised sector directly and an additional 2.5 per cent indirectly through its dependent organisations. It has invested major amount for development of health, education, housing and sanitation. With its vast network of schools and making investment in training, the Indian Railways plays a vital role for human resource development .In 201314, IR carried 8,425 million passengers annually or more than 23 million passengers daily (half of which were suburban passengers) and 1050.18 million tons of freight in the year. In 20132014 Indian Railways had revenues of 1441.67 billion (US$23billion) which consists of 940.0 billion (US$15billion) from freight and 375.0 billion (US$6.1billion) from passengers tickets.ISSUES AND CHALLENGES OF INDIAN RAILWAY1. CAPACITY CONSTRAINTS Capacity constraints is the most high density routes of railways. The trunk routes of the railway which is 16% of total network carries 50% of traffic. These routes are totally stretched and reached at a saturated level of capacity in terms of its utilization. For effective managing capacity , utilization must not exceed above 80% of total given capacity.2. Reliability of Assets It is necessary to improve assets reliability by use of upgraded track structure, better maintenance practices improvement in locomotive and signal technology, Use of shared track by freight and passenger traffic creates difficulty in its optimum utilization. Freight services suffers the most.

3. Safety Safety measures in Indian Railway is the greatest challenge. Accidents leads to loss of human life or injury or damage to railway property. Further, this also includes collision, derailments fire in trains, accidents of rood vechiles with trains at level of crossings and other specified types of miscellaneous trains accidents.

4. Slow Speed Speed of freight trains in Indian Railway is around 25Km/hr. Passenger services are slow when compared to international standards . Maximum speed for Rajadhani/Shatabdi express trains are 130Km/hr. and for mail and expressed trains are 110Km/hr. But, maximum permissible speed in European countries are 200Km/hr. High speed corridors of Europe and Japan has speed of 300Km/hr.

5. Door to Door services to handicap Railway is unable to provide door to door services and transport to small volume of handicap people.

6. Project Execution Indian Railway suffers from chronic shortages of funds. Availability of funds is very limited for execution of projects and on the other hand time & cost factors adversely affect the viability of the projects. Railways require 1,43,000 crore rupees to complete shelf on going projects . It also requires an amount of 57,000 crore at sanctioned cost of 80,000 crore for completing pending backlogs of these projects.7. New line projects Of the 109 new line projects already sanctioned and taken on hand 8 are national projects and 12 are financially viable. Others are sanctioned on socio-economic ground. Railways face insurmountable pressures to add more such projects each year, but are unable to earmark more than Rs.1500 crores per annum for these projects. Needless to say, the amount is barely sufficient to neutralize the annual escalation in cost. At this rate,the projects would languish forever.8. Technology Upgradation Indian Railway is trying its best to adopt international best practices for development infrastructure, construction induction, maintenance, operation. Railway needs to cover the gap of developed railways by compressing technology adoption on continuous basis with view to achieve steady improvement in cost of operations and quality of services.

9. Upgradation of quality of services Increase in population , prosperity and urbanization fuels the growth of passengers in railways. Therefore, demand for development of modern passengers station and terinals, re-design of trains with pleasant, soothing colors and interiors with green toilets increases.10. Quality of freight services Railway is facing problem in developing special purpose rolling stock to suit specific needs of customers and ability to promise and occasional peaking of demand and mismatch in rolling stock procurement programmes have at times exposed Railways to risk of losing customers loyalty.11. Redevelopment of stations Many stations in urban cities handles more passengers than combined numbers handled by all airports of country together. Stations are inadequately , designed and are not equipped to handle such large number of passengers. Inter-platform connectivity is through foot over- bridges., platform are also used for parcels, lack of sustainable waste management practices, lack of good quality of waiting spaces are major issues.RAILWAY BUDGET 2014-2015 FOR REVIVAL AND DEVELOPMENT OF INDIAN RAILWAYThe new Railway minister Mr. D.V. Sadananda Gowda presented the first Railway Budget of the Modi Govt. in parliament on 8, July 2014.The major thrust of the railway budget includes:1.Budget 2. Project Delivery 3. Passenger Amenities/Services with focus on food services & on cleanliness, sanitation, toilets. 4. Financial Discipline 5. Resource Mobilization 6. IT Initiatives 7. Transparency & System Improvements.

Achievements State of Meghalaya and capital of Arunanchal Pradesh to be on railway map by this year. XIth 5 year plan targets exceeded in new lines(2207km), doubling(2758km), and electrification(4556km), acquisition of wagons(64875). Production commenced at new factories- Rail wheel plant, Chhapra; Rail coach factory, Rae Bareli; Diesel component Factory,Dankuni. Specially designed coaches for adverse weather condition for rail travel in Kashmir. Successful development of Corosion resistant, lighter wagons with higher pay-load and speed potential upto 100km/hr. Passenger Amenities/Services and Station Management including cleanliness & Catering Provision for foot over bridges, escalators, lifts, etc at all major stations including through PPP route. Provision of sufficient water supply, platform shelters and toilets Battery operated carts for differently abled and senior citizens at platforms of all major stations. Expanding scope of online booking of train, coaches, berth & chair car. Introduction of ready to eat meals of reputed brands in a phased manner. Substantial increase of 40% in budget allocation for cleanliness. Extending use of CCTVs at station to monitor cleanliness activities.For improving safety and security No unmanned Level Crossing Improved audio-visual warning to road users in advance of approaching trains. Introduction of indigenously developed trains collision avoidance system. Development of crashworthy coaches. Provisions of vigilance control device in all locomotives. Various measures to prevent fire accidents: Fire retardant materials Multi-tier protection for in coaches Portable fire extinguishers in coaches Induction based cooking to replace LPG in party cars Intensive checks against explosive and inflammable materials

Resource Augmentation PPP through BOT and annuity route and identification of 8 to 10 capacity augmentation projects on congested routes. Facilitating connectivity to new & upcoming ports through PPP Speedy work on critical coal connectivity lines to bring nearly 100MT of incremental traffic to railways and facilitating faster transport of coal to power houses. Setting up of Logistics Parks to modernize logistics operations; Top priority to mechanization of loading and unloading. Pilot project for automatic rebate to customers offering traffic through computerised FOIS system. New design of parcel vans with better tare to pay load finalized. The government has planned to establish an electric locomotive factory at Madhepura in Madhepura district and a diesel locomotive factory at Marhowrah in Saran district, both in Bihar. The two projects are estimated to cost Rs.1,294 crore and Rs.2,053 crore, Following the commissioning of the projects, over a 10-year period, the factories will provide Indian Railways with 800 electric locomotives of 12,000 hp each and a mix of 1,000 diesel locomotives of 4,500 hp & 6,000 hp with high-level performance guarantees similar to international practices. The locomotives manufactured at both these factories will be fuel efficient and help mitigate the adverse impact of greenhouse gases. During the on going 12th Five-Year Plan, the Ministry of Railways has given in-principle approval for various PPP projects in the railway sector

PROJECTSINVESTMENT IN CRORE

High speed corridor(Mumbai-Ahmedabad)20,000

Elevated rail corridor(churchgate-virar)20,000

Redevelopment of stations10,000

Logistics parks3,000

Private freight terminal and other freight schemes2,815

Port connectivity projects5,000

Sonngar-Dankuni DFC10,022

Loco &coach manufacturing units3,000

Energy Projects6,000

Total79,837

Modernisation and Technology Induction Bullet train proposed on Mumbai-Ahmedabad Setting up of diamond quadrilateral network of high speed railconnecting major metros and growth centres of country;Rs.100 crore provided for initiating projects. High speed trains Joint feasibility study by India and japan for Mumbai Ahmedabad corridor to be co-financed by Japan International Cooperation Agency Exploring low cost option of speeds 160-200 km/hr on selected routes. Green Initiatives Green curtains along the track close to major stations; pilot work at Agra and Jaipur. Coverage of bio-toilets in 2,500 coaches and would be increased progressively.IT Initiatives including Revamping Reservation System E-ticket to support 7200 tickets per minutes to allow 1,20,000 users. Paperless offices in railway in 5 years. Wi-fi services in A1 and A category stations and in selected trains. Real time tracking of trains and rolling stock.Financial Health Rail infrastructure by cost sharing arrangement with state government; Karnataka, Jharkhand, Maharashtra, Andhra Pradesh, agreed to several projects. Several Public Private Partnership projects are in pipeline. FDI being enabled to foster creation of world-class rail infrastructure. Rail Land Development Authority raised 937 crore Rs. So far.

Revenue Freight Traffic Carrying capacity +9 tonnes +1 tonne routes being planned. Carrying capacity of 20 feet containers increased by 4 tonnes. Parcel Terminals & Special parcel Trains with scheduled timings. New policy on parcels to encourage transportation of milk.

SOURCES OF EARNING REVENUES AND EXPENDITURES FOR RAILWAY IN BUDGET 2014-2015 Earnings of the Railway for the year 2014-2015 is estimated to be 1,64,374 Crore, and proposed expenditure is about 1,49,176 Crore

Earnings & Revenues Leveraging Railway PSU resources- PSU are financially sound and it can help in bringing surplus fund for railway & PSUs investment in infrastructure project of railway will generate attractive returns. Private investment in rail infrastructure through domestic and Foreign Direct Investment- Internal revenues sources & government funding are insufficient to meet the requirement, therefore there is proposal to get FDI in railway sector Public Private Partnership- Bulk of the future projects is financed through PPP mode including high speed rail which require huge investment. Freight income- There will be growth in freight traffic of 4.9 % which is 1101.25 million tonnes. Earnings from freight traffic is estimated to be 105770 crore Rs. Passengers income- The fare revision will generated income of about 44,645 crore Rs. A proposal was made to scale down market borrowing through Indian Railway Finance Corporations to 14,688 crore. Resources from PPP are kept at interim level. Finance minister extended additional budgetary support of 1,100 crore as capital and 273 crore as railway share from diesel cess for important road safety work. Rail Viks Nigam ltd. will Borrow Rs.254 crore from market. To support its projects and functioning of the Ministry, the budget allocated the highest ever annual plan outlay of 65445 crore, increase of 10% over the previous years revised estimate with gross budgetary support of 32300 crore. Rs 6,005 crore is to come through the PPP route. "This money is needed to plan for the bullet trains to carry out studies about feasibility and alignment, etc," Kumar said. The Japan International Cooperation Agency (JICA) has conducted a detailed study for running a bullet train on the Mumbai-Ahmedabad route. RAILWAY RUPEE

Railway Expenditure In the past 30 years Of the 676 projects announced, worth 1,57,883 crore only 46% has seen light of the day whereas nearly 359 projects are yet to be completed entailing total cost of 1, 82,000 crore. Another project that has received significant thrust is the bullet train. With nearly 60,000 crore required to run each train, the Railway Minister envisages running a bullet train along the Mumbai-Ahmedabad corridor. In order to create a safe and mishap free superior railway system, it is estimated to cost 40,000 crore towards track renewals, elimination of unmanned level crossing and construction of railway-under-bridges and railway over bridges. The budget apportioned a sum of 1785 crore towards Rub/Rob. Working expenses has ben proposed at 1,12,469 crore Rs. Which is 15,078 crore higher than 2013-2014 Pension grown in 2013-2014 about 16% , keeping the same trend pension provision is kept at 28,850 crore Rs. Proposal was made to increase the planned outlay under budgetary sources to 47,650 crore Rs. Which is higher by 9,383 crore in 2013-14. A large part of this outlay will be spend on safety measure issues. The government is focusing on key projects in the hilly and North-East regions of the country together with last mile connectivity for ports and mines. Consequently, the government increased the outlay by 54% for North-East projects to 5116 crore.

RAILWAY RUPEE

RAILWAY BUDGET KEY HIGHLIGHTS 2011-122012-132013-142014-15

Gross revenue receipts (crore)1041110125680144168.8164374.3

Growth yoy (%)20.716.714.0

Ordinary working expenses(crore)745378440096500112649

Operating ratios(%)94.990.287.492.4

Change (bps)-472.8-251.5-106.5

Freight loading (mt)970100710471101

Growth yoy (%)3.844.8

Expected gross traffic receipts FY 2014-15Crore 2011-122012-13(BE)2012-13(A)2013-14(BE)2013-14(RE)2014-15(BE)

Passenger earnings28246.43607331322.8422103750044645

Growth yoy (%)27.710.934.8-11.219.1

Coaching earnings2716.5299403054.2342236654200

Growth yoy (%)10.212.4127.114.6

Freight earning695478933985262.69355409400105770

Growth yoy (%)28.522.69.70.512.5

Sundry earnings364340964261.4450652845500

Growth yoy (%)12.4175.717.34.1

Suspense-43.250-168.4505050

Growth yoy (%)-215.7289.9-129.700

Total earnings104110.3132552124732.6143742140499.8160165

Growth yoy (%)27.318.816.2-2.314

Expected expenses allocationCRORE2011-122012-13(BE)2012-13(A)2013-14(BE)2013-14(RE)2014-15(BE)

Ordinary working expenses74537844008401296500970160112649

Growth yoy (%)13.212.714.90.616.1

Depreciation Fund6520950068507500650068500

Growth yoy (%)45.75.19.5-13.35.4

Pension Fund17640185002071022002370028550

Growth yoy (%)4.917.46.27.720.5

Total Working Expenses99450112400111572126000127260148049

Growth yoy (%)1312.212.9116.3

Operating Ratios95.584.890.287.793.592.4

Change bps (%)-1072.7537.5-251.5584.3-106.5

Dividend Payment5656667605384.96249.27839.99135

Growth yoy (%)18-5.416.825.516.5

Excess112615578266.313146.87943606327

Explanatory Notes

Other sources of earning

1. Coaching earnings include income from parcels and luggage 2. Sundry earnings represent earnings from lease of railway land, advertisement and publicity etc. 3. Suspense represents unrealized traffic earnings

Performance parameters

4. Net Surplus after payment of Dividend represents excess of receipts over expenditure after the Dividend liability (payment for investment in Railway capital) of General Revenues has been paid off 5. Operating Ratio is the ratio of operating expenses to receipts. A lower ratio indicates higher surplus availability for investments.

Railway Funds

6. Depreciation Reserve Fund Finances the cost of new assets replacing old assets including the cost of any improved features. Appropriation to this fund are made on the recommendations of the Railway Convention Committee (RCC) 7. Pension Fund Finances all pension payments to retired Railway staff 8. Development Fund Finances expenditure on Passenger and Other Railway Users Amenities Works, Staff Welfare Works, Un-remunerative operating improvements etc

Railway Earning in (crore)

Working Results in (crore)

Operating Ratio (in percentage)

Excess

Analysis and conclusion In 2013-14 loading was of 1,008 million tonnes and it surpassed the actual target of 1,007 million tonnes and in the year 2014-15 target is of 1101 MT which is 94 MT more than 2013-14.Operating ratio in 2013-14 was 90.2% but in current FY 2014-15, the surplus of the railway is expected to decrease by 24% to Rs 6,064 crore and this will increase the operating ratio to 92.5%. Gross traffic receipts are expected to increase to Rs 1,60,165 by 14% over 2014-15 on account of the recent hike in freight rates and passenger fares. Passenger fares were increased by 14.2% which was inclusive of 4.2% Fuel Adjustment Component (FAC). Freight rates were increased by 6.5% (inclusive of 1.5% FAC). According to the Ministry, the FAC will be linked to fuel prices to cover the revenue which will arise from increase in fuel cost. The hike in passenger fares was to reduce losses in passenger business that increased from 10 paise per passenger per km in 2000-01 to 23 paise in 2013-14.

Some of the key deviations in the revised estimates compared to the budget estimates in 2013-14 are: Total revenue in 2013-14 undershot budget estimates by Rs 2,458 crore. Total expenditure overshot estimates by Rs 1,155 crore. The net surplus was lower by Rs 5,204 crore. Appropriations to the Railways Capital Fund was lower by Rs 875 crore.

This Railway Budget focuses on planned investment of Rs 65,445 crore in 2014-15 when Compared with 2013-14, there is an 3% increase with the extra funds coming largely via Gross Budgetary Support (an increase of 16%). The main focus of the investment will be on safety related works. Since the internal resource component has been increased, the Extra Budgetary Support or market borrowings have been scaled down by 16%. Keeping fiscal discipline in mind, railway did not announced any new projects. Infrastructure will be developed with the help of FDI and public private partnership due to lack of internal resource generation and government funding. Railway will also make use of its vast land resources to generate revenues. Budget was divided into two parts first includes implementing past proposed projects of last 10 years in action, second includes big vision ideas like bullet trains and diamond quadrilateral of high speed rail networks.58 new trains will be introduced, of which is premium (five), AC Express (six) and Express (27) categories which attract higher fares, and just five Jansadharan (unreserved) trains and eight passenger trains. FDI can come in automatically (automatic route) or through Government approval (approval route). If FDI in railways is allowed under approval route, national security concerns can be looked into by Foreign Investment Promotion Board (FIPB).

KAUTILYA said-In the happiness of the people lies the Rulers happiness Their welfare is his welfare What pleases him, the Ruler shall not consider good but whatever pleases his peoplethe Ruler shall consider good

BIBLIOGRAPHY

http://www.irfca.org/~mrinal/history_ir.html

http://en.wikipedia.org/wiki/Railway_Budget

http://indianexpress.com/article/india/politics/rail-budget-highlights-sadananda-gowda/

http://zeenews.india.com/business/indian-budget-2014/railway-budget-2014-full-text_103436.html