Dipen Shah, Head- Private Client Group Research, Kotak Securities shares his views on Narendra Modi government's first rail budget:
The first railway budget of Railway Minister, Sadanand Gowda, lays down the strategy for long term sustainability of the railways. Gowda has tried to address some of the critical issues, which can substantially improve the efficiency and service quality of the railways. Focus is more on implementation rather than on big bang announcements.
On finances, the FY14 operating ratio of 93.5% is of concern. The rail minister has projected a ratio of about 92.5%, which seems achievable. He has also budgeted for lower market borrowings through Indian Railway Finance Corporation. The railway minister has indicated that he will look at increased contribution from private sector through the public-private partnership (PPP) route. The railway ministry is also seeking cabinet approval for FDI in railways, excluding operations. The announcement of bullet trains and a 'diamond quadrilateral network' of high speed rail is a welcome move.
The rail minister has also introduced some new initiatives like splitting the two main functions of the railway board - into policy formulation and implementation - using solar power and bio-diesel, emphasis on skill-building for railway employees, setting up of a Project Management Group and a Project Monitoring & Coordination group to expedite implementation, etc.
The markets have likely been disappointed by the absence of several big announcements relating to the dedicated freight corridors or other capex programs. The poor operating ratio also came as a shock. However, the focus on effective implementation, improving the operating ratio as well as on new initiatives, bodes well for the railways in the long term. A similar focus on deficit as well as reforms is likely to be reflected in the Union Budget as well.