Reformist Prabhu Fails to Meet Expectations with Railway Budget, Analysts Say

The Rail Budget was watched keenly for pointers to what the Union Budget - billed as a make-or-break presentation on Saturday - will hold.

As he read his speech, his first ever, chartered accountant turned politician Suresh Prabhu began to earn some applause. He resisted the temptation of announcing new trains and projects aimed at his constituency as so many of his predecessors have done.

He did not hike passenger fares, giving relief to millions of Indians for whom the railways remain the most affordable and preferred mode of transportation.

As he finished, Mr Prabhu's Railway Budget was described as a "Rockstar" Budget by an analyst from EY Abhaya Agarwal.

"Whatever you wanted to hear in terms of productivity, investments...it is there." he said.

But in his 67-minute speech, Mr Prabhu failed to mention the hike in freight charges that will kick in on April 1, 2015. The share of freight carried by railways has been declining because tariffs in India are among the highest in the world. Analysts are surprised that Mr Prabhu, a known reformer, failed to appreciate the much-highlighted fact.

Once the small print was read, many analysts pointed that the hike in freight rates has come at a time when fuel prices have gone down, which is an irony.

Investment banker R. Balakrishnan tweeted, "Nice. Lower fuel prices balanced by higher freight charges. Railway Accounting."

Railway ministers, in the past, have been criticized for optimistic projections and it seems Mr Prabhu too has some statistical surprises for analysts.

According to Budget estimates, earnings from passenger fares are likely to go up to Rs 50,175 crore in 2015-16 from Rs 43,003 crore in 2014-15. Analysts wondered how Mr Prabhu will meet this target without hiking fares.

"Passenger earning growth target is optimistic in the wake of no increase in passenger fare. The passenger earning growth in FY15 was achieved on the back of fare and tariff revision in June 2014. Even the freight traffic target at a time of sluggish domestic as well as global economic activity appears to be optimistic," said India Ratings and Research.

Mr Prabhu expects freight earnings to go up by nearly Rs 15,000 crore to Rs 1.21 lakh crore in 2015-16.

His ambitious 5-year investment plan of Rs 8.50 lakh crore for funding rail infrastructure was also criticized for lacking in detail.

"I am little doubtful about the ways the railway minister will finance the huge capital expenditure as the budget lacks the specific detail," said Jyotinder Kaur, principle economist at HDFC Bank, New Delhi.

Despite the Rail Budget lacking in detail about fund-raising plans, tax expert, Mukesh Butani was willing to grant more time to Mr Prabhu, who became Railway minister just four months ago. "No details of FDI liberalisation in rail projects and idea (or lack thereof) on long term financing took me by surprise; perhaps, the government is taking one step at a time!"

All these factors weighed on stock markets; it was a bad day for rail stocks in particular as they closed with up to 6 per cent losses. The Sensex declined most since February 9, ending 261 points lower at 28,747.