In an interview to CNBC-TV18, SK Nevatia, CMD, Hind Rectifiers , said he expecting a good industry-friendly Budget this time. Moreover, he sees strong ordering on wagons and engines in the Rail Budget.
He thinks the full benefits of the Rail Budget will only be seen in FY16 and feels the Railways will contribute around 60 percent to the anticipated turnover in FY15.
Vivek Sahai, Former Chairman of the Railway Board, feels more public-private-partnership should be encouraged in the sector, which should also focus on construction.
He expects Konkan Railways to make profits after years of losses.
Below is the transcript of SK Nevatia and Vivek Sahai's interview with Sonia Shenoy and Latha Venkatesh of CNBC-TV18.
Latha: What are the points that you will lookout for, which exact statements either in terms of wagons or in terms of signalling systems, what will you lookout for in today's Budget?
Nevatia: After four years I am expecting a good industry friendly Budget. All the manufacturing units of the railways, the Chittaranjan Locomotive Works (CLW), the Integral Coach Factory (ICF) Chennai, Rail Coach Factory (RCF) Kapurthala and Diesel Loco Modernisation Works (DMW) would be going in for big railway coaches and locomotives. I am expecting CLW to have about 275 loco orders in the next financial year and I expect about 200 coaches to be made by ICF Chennai and RCF about 250 coaches and 125 coaches made by DMW Varanasi. So, I am expecting a good Budget.
I am expecting that CLW would require about 275 locomotives; 100 will be conventional and 175 would be three-phase. If they are not able to manufacture 175 three-phase then they will increase the conventional. I am expecting about 200 coaches to be built by ICF and about 250 coaches required by RCF Kapurthala and about 125 by DMW Varanasi. So, it is a good quantity and all of us who are connected to the railways in various ways should benefit.
Sonia: Let us talk about the other expectation which is the possibility of raising foreign direct investment (FDI) in railways to 100 percent. If that comes through how much of a benefit would it be in the sense how much interest have you seen from foreign investors in the sector itself?
Nevatia: Foreign investors if they are allowed to setup unit here then we expect them to buy rectifiers and some things locally. They will not bring everything here which is made here and available at a competitive rate. So, if foreigners like Bombardier and others are allowed to setup factories here, the Indian part will benefit because some of the part they will outsource from here rather than import and increase their cost.
Latha: One of the fundamental issues with the Indian railways is that it moves just 30-32 percent of India's freight. In almost every other country globally the average is 70 percent. Is there anything, one or two game changing things that the government can do to improve this margin at least from 30 percent to 35-40 percent?
Sahai: We have been losing railway share in the freight traffic which is being offered in the country. We are at 36 percent at the moment and the trend is by 2020 it may reach 25 percent and that is the most important point because if the freight traffic goes down our earnings can never be ahead of the expenditure. So, railways have to find ways and means to get the traffic back.
Two-three things which come in the way are, first there is an acute shortage capacity in the system. Wagons now are quite alright but tracks; the running of trains is required at least 30-40 percent more than what is there today. Indian Railways has 64,000 kilometre of track; the route kilometre and nearly 25,000 kilometre is running at more than 100 percent capacity utilisation. In fact there are some sections where the capacity utilisation is gone around 150 percent which means the traffic is running slow. It is like a congested road. So, what is happening is the railway is not able to give comfort to the customer that they would be able to supply the wagon when he needs. So, that is the first point that we have to create more capacity.
Dedicated freight corridor is something which is going to address that problem. The two most congested routes; Eastern and Western route both would be having dedicated freight corridor which will give relief to the existing route and we can run more trains there. More than that there is another problem, we have gravitated towards block rake running of trains. A block rake means that you have to offer traffic in full block, full train load only then we will carry it and that full train load is around 2800-3500 tonnes.
Cement and fertiliser companies move but suppose somebody is producing 400 tonnes of material a day he will have to wait for 7-10 days to get a train and then railways will not give him an assurance that the rake would come on that day because of the capacity constraints. So, that is the problem and it can be solved only by increasing the capacity in the system, changing the rules that persons who are wanting to move 500-600 tonnes per day they should also be served by the Railways.
Latha: How can they find money for this? What you are asking for is a massive increase in infrastructure so where is the money? PPP will not come because how will the private sector be sure that they are going to make money on this? Even on roads which is relatively easier, there have been huge resistance to even raising toll rates, so, PPP is just a fine word but it doesn't seem to be working with the railways. Is there any other way?
Sahai: Railways is having an annual plan of about Rs 63,000-64,000 crore; last year 2013-2014 we have spent nearly Rs 64,000 crore. There are three components of this investment; one is railways self generation from its profits, second is the gross budgetary support and the third is market borrowings. Indian Railway Finance Corporation (IRFC) has been there to look after the market borrowings and we are very keen on getting more investments through the PPP mode which is not very much forthcoming.
Only when we opened to the container operators we got some money and our wagon investment scheme also brought in some Rs 1000-1200 crore worth of wagon which were procured by the private parties. However, we have to find ways and means to get PPP for railway construction work and the policy is not very clear. When we get money from the Budget we pay dividend on it at the rate of around 5 percent. Now, a PPP partner will expect more than 5 percent, how do you do that and how much profit will he make?
Another point has to be remembered that railways are very long-term projects. In the initial years you will not be able to reap the benefit. Konkan Railway is a living example. It made so much of losses but this year Konkan Railway has made profit and we are hoping that in another four or five years Konkan Railway will be giving good profit and that way railway projects tend to give profits after about 8-10 years.
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