Privatisation of Indian Railways

Privatisation of Indian Railways

Even as the talks on the privatisation of the Indian Railways intensify with the recent budget saying a complete no to any of that kind solution however Mamta Banerjee adding a minor clause regarding it in the railways budget: This topic has gained an important imposing topic.

Figuring out to silence speculations on the privatisation of Indian Railways Mamta Banerjee simple added that no such proposition is going to be applied this fiscal year however the railway ministry would look into other possible business models for railway development to sustain the growth that the railway ministry has meted out and simultaneously prepare itself for a future growth.

However from my point of view I would like to add some things that I think should be thought over before taking some or the other substantial decision.

Standard of Indian Railways.

Indian railways within the past two UPA elected government has been in a lot of glamour and show off with new and different plans being implemented by the two railway ministers. Another staggering addition has been the growth in the Indian Railway system and the sudden surging profit that this public sector company has achieved. However is the railway still worth the money spent on it?

Well one thing to be noted that Indian Railway for the people of the country is kind of a lifeline. Even if we consider the staggering population of India we can easily see that railways is something that connect one end of the country to the other and is the most cheapest viable and useful medium that people trust and adhere to. Railway is one way or the other attached to most of Indian homes. Therefore there is no two thoughts on how much importance is the railway development to the people of India. Railway is the lifeline of the country.

Every class culture and financial slab of the Indian household enjoys this service. The competitive options like that of airways and roadways are comparatively less favourable in Indian household. Railways end up being the biggest winner.

However if we compare the standard that the Indian Railways provide us I would not particularly want to comment on that. Being in the public domain expectation about the services are not so high henceforth I would grade it as ok.

However compared to the standard of services that railways in foreign countries provide the situation is thought provoking. The diffused quality of railway lines , the time lag, efficiency, cleanliness are some of the points on which the Indian railways could be downgraded and called inefficient however they are able to meet the demand by effective supply somehow more or less which is good

Demand vs Supply

Some say demand equal to supply is the basic equation of any give and take institution and why should Railways be different. Even though the railway industry is not run for effective profit however it always tries to meet the demand that an Indian traveller could create. In short more or less the supply is there. However in the recent times the above equation negates itself when

· There is more demand that means there is an incentive to the Railways to provide more trains

· There is more supply that means there is an opportunity for the people to use more of the railways.

The above two conditions however appear in an economy which in a very fast growing economy wherein a little discord or loss over some time could be easily meted by the sudden rise in profit if that particular policy works. Indian in general however is not so sound enough that the losses could be carried over by the institution.

Siddu was commenting that China is building 4000 km last year of tracks and we built a meagre 200 km and disregarded the budget. What I say is Indian Economy sustainable enough to handle even 500 km of more tracks when the demand side is quiet stable and stagnant. Even with the development of agricultural setups the requirement from that part is still stagnant.

Thus what I conclude for the time being Indian railway is somehow doing justice for the demand. No farmers kill themselves because they did not get the train support. No person killed for lack of transportation. But however I am not implying we would not need privatisation. We would need that and ultimately one of the two points that were forcibly generated demand or supply some time in future as country grows at a very fast pace.

When to privatise?

Efficiency and facilities of the service is always associated with being a private enterprise. However the important thing to keep in mind is that private players seldom take offence and not do anything to make money.

To meet the growth of the railways at some point of time a ruthless private sector would be needed to drive sustainable and revenue generating system but not now. The government with its pace right now is able to cope up with whatever is to be done.

So the question remains when to privatise. My chance would be when the system tells itself that no further it could be handled completely by the government. The system itself is the best indicator of it.

Privatisation would envisage following situational points:

· High Fare

· High efficiency

· High regularity

Thus it would endanger: low cost markets, petty small people etc

Thus privatisation is internally filled with lots and lots of problem as can be imagined herein with.

Solution

No clear cut business model is present to balance the Indian growth properly. Privatisation would satisfy but will also kill. The complexity of the entire financial system complicates lots and lots of matters therefore it is better that a controlled privatisation in a step by step manner is evolved.

More to come..........

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NIPPING IN THE ‘BUD’GET

As the Finance Minister (F.M.) Pranab Mukherjee walked into the Parliament with his usual dignified style for his Budget speech 2010, India Inc. was on the edge because the gamut of measures and reforms they expected to be taken by the government for the current fiscal year were to decide what would happen.

It was going to tell whether the roll back of the Booster measures announced to combat last year’s slowdown would be reversed or possibly the same path would be fortified once again. .

Speech was delivered but was greeted neither with Razzmatazz nor with stoicism, but the package on a whole presaged a fiscal consolidation. A vision was promised in the last year’s Budget session but it seems rather just a revision was possible owing to the ‘Tsunami’ of the financial crisis hit the world economy and nearly wiped out the economic gains of past decade.

Without delving into the labyrinth of statistical figures and to put all the aspects of the budget in a simple order let us look at the major provisions of the Budget by the F.M.

We The People

The Increase in the slab for Income Tax is surely a ‘Holi’ bonanza for the common man with a great amount of saving promised in the Budget by the F.M. This certainly has put more money in the hands of the people and paves a way for stronger economy with the money in the hands of the consumer. We can envisage a better financial consolidation soon.

Industry

While the Minimum Alternative Tax (M.A.T) has been raised the surcharge on the corporate tax has been cut by 2.5% which will alleviate the industry stake holders. The government plans to collect revenues from disinvestment of public sector companies and also by the 3G SPECTRUM auctions hence government will borrow little money from the market in line with its target to contain fiscal deficit. These lower government borrowing will ensure funds are available to the private sector at reasonable prices.

The Auto sector will be hard hit with the price hike of petrol and diesel, but the decrease in the tax slabs for the middle and high income families will put the Automakers in a position to pass their tax burden on the consumer without much effect on both the supplier and the consumer side.

Farmers

With the new policy allowing direct hand over of subsidies to the farmers in form of cash in lieu of oil bonds, the F.M. has struck the right note enabling the Monsoon struck poor farmer to get out of his predicament.

Although more than 50% of the farmer subsidies will land into the pockets of the Agriculture-Industrialists but still it will cascade the overall effect of the development of the Indian agriculture since these subsidies will pave the path for the construction of cold stores and would hence prevent the damage to the crop and hence will boost the sales.

Also the 6 months extension on the repayment of loan proposed by the F.M. is a ray of hope for the farmers suffocating in the dungeon of the crisis due to poor Monsoon.

Banks

In accordance with the Loan waiver policy adopted last year the F.M. has gifted the Harvester of the Indian economy, the farmer, a 6 months extension on the repayment of loan which has benefited the Banks considerably.

Had the relief not come banks would have been force to categories the overdue farmer loans in their books as ‘NPA’ (Non-performing loans) in the fourth quarter which would have showed in their results in March ’10.

Also after the rise in the loan deposit ratio banks will now re-deploy assets from their low yielding bonds to loans.

Major Criticism

The fuel price hike has certainly the potential to be the Nemesis of the U.P.A. government for the next general election but it was an imperative move which was required to keep the State owned companies from going under because they need humungous subsidies to balance their chart-sheets which the our debt ridden economy can’t provide.

The deregulation of the oil prices will profits of the government owned companies like –IOCL, ONGC, GAIL would increase. After initial inflation it will eventually contain overall inflation in the long run and improve efficiency from competition among retailers .and search for alternative fuels, boost energy conservation and rein in fiscal deficit.

Pragmatic Moves

A Central Electronic Registry will be established soon. The Central Electronic Registry would be a database of all mortgages and the banks that have a charge, so whenever a borrower seeks to avail loan against a property, lender will be able to verify whether anyone has already got a charge of the property.

The announcement of the Financial Stability and Development council is a good move to control the financial Infrastructure of the Nation.

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To round up simply, the government works in a loop. It takes money from the people in through Direct and Indirect taxes and simultaneously delivers it back to the same people by plethora of social services. Budget presented by our F.M. has sensibly managed the conflicting objectives of growth, inflation and fiscal prudence. The partial rollback of the fiscal stimulus in form of increased excise duty is in line with the market expectations and is considered prudent by the market analysts.

Budget has some inflationary effects too but it won’t be more than 0.4% according to our responsible F.M. and he assures that it would be contained effectively.

Certainly the F.M. could not have nipped the Recession in the “BUD” but most positively he has tried to Nip it in his “BUDGET”.

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