Railways Challenge Fortune 500 Cos

Railway minister Lalu Prasad Tuesday proudly claimed that his is a better than Fortune 500 enterprise with a surplus (profit) that far exceeds that of many companies on the list. The other side of the picture, though, is a touch less rosy. Railways has estimated a surplus of Rs 19,992.03 crore for 2008-09, a shade less than the Rs 20,049.24 crore expected in the current year.

Ironically, the minister admitted to the jugglery himself when he stated that it was “magic” last year and it would be illusion this year. The ‘turnaround’ minister’s growth tale may be dampened by Rs 5,000 crore provisioning for an anticipated increase in the wage bill arising out of the implementation of the yet to be submitted sixth Pay Commission report.

The Railways with 14 lakh employees is the biggest employer in the world and the only government department in India to meet salary and pension expenses from its earnings. The increased operational cost, which should ideally be on account of increased investment in capacity, would reflect in the increased operating ratio of 81.4% that is estimated to be 76.3% in 2007-08. Operating ratio is what the railways spends on each Rs 100 it earns. The lower
the number the lesser the money it is spending.

There is no denying the fact the Railways are earning more with income from freight and passenger traffic and other sources expected to increase 11% to Rs 81,901 crore from Rs 72,755 crore in the current year but sustaining growth would become difficult if the signs of slowdown in economy becomes a reality especially in view of no large scale capacity additions.

The Railways would have to make heavy investments for the expansion of the network, modernisation and upgradation of the technology and for providing world class facilities to customers in the coming years,” said Lalu Prasad. In 2008-09, the Railways have chalked out a Plan size of Rs 37,500 crore which is 21% higher than the previous year.About 80% of the Plan would be funded from the Railways’ own kitty and borrowings while 20% amounting to Rs 7,874 crore would come as support from the government. Sources said the Planning Commission and the ministry of finance has asked the Railways to leverage its earnings for raising borrowings.

The cash surplus of the Railways rose from Rs 9,000 crore in 2005 to Rs 14,000
crore in 2006 to Rs 20,000 crore in 2007.

In 2007-08, it’s Rs 25,000 crore, and the government department has also announced a dividend of Rs 4,218 crore to the owner - government.

Yadav said: “Indian Railways is a Government Department. However, we take pride in the fact that our achievement, on the benchmark of net surplus before dividend, makes us better than most of the Fortune 500 companies in the world.”

While stating that Rs 2.5 lakh crore would be the Railways’ Plan expenditure within the next five years, Lalu Prasad added that of this Rs 1 lakh crore would come from the private sector. Prasad announced that public private partnership projects worth Rs 25,000 crore would be awarded in 2008-09. Most of these projects would be for modernisation of railway stations though the Railways are also planning to set up coach and locomotive factories through private help in Kerala, Uttar Pradesh and Bihar.

Of the total private investment in the five year period, setting up of diesel locomotive, electric locomotive and rail coach factory would attract investment of Rs 4,000 crore while commercial utilisation of railway land would bring in another Rs 4,000 crore. Container trains and depots and multi-modal logistics park will attract investment of another Rs 2,000 crore.

Read Full Railway Budget , Highlights

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