Modi govt holds off fare hike

New Delhi: The Union government will pump $17.6 billion (Rs 1.21 lakh crore) into the railway network in the coming financial year. This marks a 20 per cent increase from 2015-16. The government, however, shied away from the politically unpopular move of raising fares ahead of crucial state polls.

Presenting the Railway Budget for 2016-17 in Parliament, he said the guiding principles to keep the modernisation of world's fourth-largest network on track are new sources of revenue, expenditure optimization and new operating structure. Budget announcements included India's first rail auto hub in Chennai, boost to e-catering, creation of dedicated north-south, east-west and east coast freight corridors by 2019; connectivity to North-East and Wi-Fi in railway stations.

Unlike last year when he tweaked freight rates to mop up an additional Rs 4,000 crore, Prabhu made no fresh changes either in passenger fares or freight rates.

Prabhu said the network needed more revenue to offset a wage bill rise of $4.7 billion (Rs 32,344 crore), slower growth in passenger and freight receipts and to fund the 21 percent rise in the budget to 1.21 lakh crore rupees. "These are challenging times," Prabhu told Parliament.

Prime Minister Narendra Modi has prioritized overhauling infrastructure in his first 20 months in power. But in keeping fares low, his government is sticking to a tried and tested formula of avoiding decisions to cut subsidies.The fact that over 2.3 crore people, mostly poor, use trains every day, and the Railways' workforce of 13 lakh people, have made successive governments reluctant to adopt reform.

"The Railway budget is going to put more pressure on the general budget. They should have gone for a marginal hike in fares," said NR Bhanumurthy, an economist at the National Institute of Public Finance and Policy, a Delhi-based think tank.

Modi's government is also expected to focus on more populist spending measures in Monday's Union budget, as he looks to shore up support ahead of four state elections this year. Government bonds and the rupee slumped after the Railway Budget was announced as fears grew that New Delhi would widen its 2016-17 fiscal deficit target of 3.5 percent of the GDP to afford higher spending.

The money spent on the Railways is a little over two per cent of overall public expenditure, but its symbolic importance and political resistance to change have discouraged governments from scrapping the tradition of a separate budget.

The government will hand the Railways Rs 45,000 crore in funding for the next financial year, up 12.5 percent on 2015-16. However, the bulk of this amount will go into the wage bill. It is in rising revenues that Prabhu said he will find the cash to keep the modernisation plan on track.

The Railways predicts a rise in revenue receipts to Rs 1.85 lakh crore in 2016-17, up 10.1 per cent from 2015-16. The previous rail budget had seen a 7 per cent increase, as fewer travellers took trains than expected.