Rail Budget High on Vision, but Can Push Up Costs: Analysts

Mumbai: Railway Minister Suresh Prabhu's maiden Budget is high on vision and small announcements, but could push up cost of logistics that can hurt initiatives like the 'Make in India' campaign, analysts said on Thursday.

"The rail budget has not addressed the main concern of logistics cost for India Inc and that will continue to remain high. Unfortunately this is not going to help the make in India campaign," SV Sukumar, partner for strategy and operations at consultancy firm KPMG, said in a note.

In its reaction, domestic ratings agency India Ratings said cement manufacturers will be hit the most by the hike in freight charges for ferrying cement (2.7 per cent), coal (6.7 per cent) and slag (2.7 per cent).

If the companies are not able to pass on the hike to customers, the operating margins can be affected by up to 1.20 per cent, it said, adding if they decide to pass it on to customers, there will be an increase of Rs 5-7 per bag.

Another consultancy firm Grant Thornton called it a "pragmatic" Budget saying it focuses on improving the operational efficiency in the short-term and transformation in the medium-term, which can make the Railways more effective to address growth concerns in the long-run.

"Overall, this is a very positive budget that can 'build momentum in waves' for a significantly reformed Railways in the years to come," its partner G V Subrahmanyam said.

PwC India's partner and leader for capital projects and infrastructure, Manish Agarwal said measures like time table for goods trains, working with states, accessing long-term financing from development finance bodies and use of private sector for last mile connectivity are also welcome.

Mr Sukumar of KPMG said the emphasis on increasing the speed in nine busy corridors is a positive for the industry as it will reduce the logistics lead time.

He added that announcements like transport development corporations and multi-modal depots will improve the delivery capability and should be welcomed by industry.

In a note, domestic rating agency Icra's Jayanta Roy said the freight rate increase on coal would lead to higher of the fuel for steel companies.

"At a time when steel players are facing margin pressures on account of an industry downturn, this would adversely affect their profitability, especially those whose plants are at a long distance from the sources of coal," Mr Roy said.

He also noted that the steel industry is highly material intensive in nature, where 1 mt of finished good requires almost 3 mt of raw material movement, of which coal would be about one third.