The Modi Cabinet has approved the setting up of an <a href="http://www.businessinsider.in/a-farewell-to-subsidies-railwaysto-set-up-an-independent-agency-to-look-after-fares/articleshow/56059348.cms">independent rail regulatory authority, </a>which would determine passenger and freight tariffs and make sure that there is no foul play involved. It would also ensure impartiality for <a href="http://www.businessinsider.in/sixty-year-relief-period-to-private-investors-for-railway-stations-revamp/articleshow/57790089.cms">private players </a>that want to invest in the railways. 
 
This would be the biggest and first-of-its-kind reform in the <a href="http://www.businessinsider.in/transportation/trains/indian-railways-just-got-its-first-make-in-india-train-rake/articleshow/57715819.cms">Indian railways</a>. 
 Formulating this <keyword id="3202631" type="UNKNOWN" weightage="100" keywordseo="Rail-Development-Authority">Rail Development Authority</keyword> (<keyword id="6474499" type="ORGANIZATION" weightage="100" keywordseo="RDA">RDA</keyword>) would mean an improvement in the services that passengers get and comfort that investors seek, along with increased transparency and accountability 
 
The cabinet has decided that the RDA will be formed through an executive order of the government. It would be provided with an initial fund of Rs 50 crores. 
 
Also read: <a href="http://www.businessinsider.in/indian-railways-to-increase-the-speed-of-its-passengertrains-up-to-200-km-per-hour-thanks-to-russia/articleshow/56716999.cms">Indian Railways to increase the speed of its passenger trains up to 200 km per hour, thanks to Russia</a> 
 
Responsibilities given to RDA will include <a href="http://www.businessinsider.in/transportation/trains/this-is-what-railways-is-going-to-do-to-increase-revenues-no-it-is-not-increasing-fares-for-now/articleshow/56417610.cms">tariff determination </a>and recommending principles for classification of commodities, framing principles for social service obligation and guidelines for track access charge. 
 
RDA’s job would also include suggesting the ministry regarding policies for private investment so that PPP investors get reasonable protection. It would also be authorised to resolve disputes over future concession agreements. 
 Since 2001, the need of such a rail regulator has been stressed upon several times and by various committees, including Expert Group under the Chairmanship of Rakesh Mohan in 2001, the National Transport Development Policy Committee (<keyword id="3194728" type="UNKNOWN" weightage="100" keywordseo="NTDPC">NTDPC</keyword>) in 2014 and Bibek Debroy's Committee in 2015. 
 
The authority will comprise of one Chairman and 3 members, while it would be free to engage experts from relevant areas. Their appointment will be done by the central government, while the panel of names will be recommended by the Search and Selection Committee, including Cabinet Secretary as Chairman, Railway Board Chairman, Secretary, Department of Personnel and Training, and Chairman of any Regulatory Body of central government nominated by the Cabinet Secretary. 
 
(Image source Youngisthan)

A rail regulator is coming up to recommend passenger and freight fares

Rising pressure from Opposition over performance of the <keyword id="6355125" type="ORGANIZATION" weightage="20" keywordseo="NDA-government">NDA government</keyword> led BJP to kickstart an exercise of regular interaction between the party and Union ministers so that the "good work" done by the Centre is effectively communicated to the people. 

	The idea is to update party spokespersons with the decisions taken by ministries so that they are able to put out the right perspective. It was often found that many in the party were unaware of what stand to take on an issue or the 'good work' that needed to be communicated to the people. 
 This "good governance" department in BJP constitutes of Vinay Sahasrabuddhe and Sidhharth Nath Singh, who have been coordinating the party's interaction with different ministries. Party leaders and spokespersons have already met defence minister <keyword id="6363133" type="PERSON" weightage="20" keywordseo="Manohar-Parrikar">Manohar Parrikar</keyword> and railway minister Suresh Prabhu besides Bibek Debroy, Niti Ayog member, as part of the exercise during which presentations were made about the achievements of the two ministries and their focus areas. The next round of meetings will be with finance minister <keyword id="42575" type="PERSON" weightage="20" keywordseo="Arun-Jaitley">Arun Jaitley</keyword>, road tranport and highways minister <keyword id="26680" type="PERSON" weightage="20" keywordseo="Nitin-gadkari">Nitin Gadkari</keyword>, commerce minister Nirmala Sitharaman and power minister Piyush Goyal, before the Budget session of Parliament begins. "The purpose of the exercise is that a lot of good work is being done by the government and party spokespersons need to highlight the achievements of the Modi government," BJP national secretary Sidharth Nath Singh said. 

	With the Modi government set to present its second full budget later this month, Congress has been aggressively attacking the centre over its performance. BJP members said there was a need to arm party leaders and spokespersons with correct information so they could effectively counter the opposition charges.

BJP ministers to update party on work progress

With noted economist <keyword id="6366253" type="PERSON" weightage="20" keywordseo="Arvind-Panagariya">Arvind Panagariya</keyword> taking charge as Vice-Chairman of the National Institution for Transforming India (NITI) Aayog, which was announced by Prime Minister <keyword id="6354477" type="PERSON" weightage="20" keywordseo="Narendra-Modi">Narendra Modi</keyword> in his first Independence Day speech on August 15, 2014, the <keyword id="46913" type="ORGANIZATION" weightage="20" keywordseo="Planning-commission">Planning Commission</keyword>, a vestige of the Nehruvian socialist era, has literally become a memory. 
 
The Planning Commission was established on 15 March 1950, with the then Prime Minister Jawaharlal Nehru as the Chairman mainly to formulate a plan for utilisation of country's resources and definingthe stages, on the basis of priority, in which the plan should be carried out. 
 The first Five-Year Plan, launched in 1951, focused mainly on development of the agricultural sector and the emphasis of the eight subsequent Plans was on a growing public sector with massive investments in basic and heavy industries. However, since the launch of the Ninth Plan in 1997, the emphasis on the public sector has become less pronounced and it has been suggested that the Planning Commission should henceforth play a strategic and indicative role, assisting the Centre and State in carrying out broader economic planning. Subsequently, it was scrapped last year and <keyword id="2665691" type="UNKNOWN" weightage="20" keywordseo="Niti-Aayog">NITI Aayog</keyword> was constituted following a Cabinet resolution. 
 Sixty-two-year-old Arvind Panagariya, who is named as the first Vice-Chairman of NITI Aayog (in contrast, Planning Commission had a Deputy Chairperson at the helm), is an Indian-American economist and Professor of Economics at Columbia University. A close associate of well-known trade economist Jagdish Bhagwati, Panagariya is known for his market-friendly views. He has earlier Chief Economist of Asian Development Bank and a Professor of Economics and Co-director, Centre for International Economics, University of Maryland at College Park. Holding a Ph D in Economics from Princeton University, Panagariya has also worked for <keyword id="6354424" type="ORGANIZATION" weightage="20" keywordseo="World-Bank">World Bank</keyword>, International Monetary Fund, World Trade Organisation, and the United Nations Conference on Trade and Development (UNCTAD) in various capacities. 
 The <keyword id="6360789" type="ORGANIZATION" weightage="20" keywordseo="Modi-Government">Modi government</keyword> also named Sindhushree Khullar (who was appointed as the Secretary of Planning Commision in April 2012 and continued to hold the post even after the Modi Government scrapped the Cabinet resolution in August 2014 through which the Planning Commission set up) as the first CEO of NITI Aayog. 
 
Earlier this month, Prime Minister Narendra Modi, who is NITI Aayog’s Chairman, <a href="http://pib.nic.in/newsite/mbErel.aspx?relid=114338">appointed</a> economist Bibek Debroy and former Defence Research &amp; Development Organisation (DRDO) chief V K Saraswat as full-time members. 
 Also, Union Home Minister <keyword id="6355121" type="PERSON" weightage="20" keywordseo="Rajnath-Singh">Rajnath Singh</keyword>, Union Finance Minister <keyword id="42575" type="PERSON" weightage="20" keywordseo="Arun-Jaitley">Arun Jaitley</keyword>, Railways Minister Suresh Prabhu and Union Agriculture Minister Radha Mohan Singh are Ex-Officio members. In addition, Union Roads and National Highways Minister Nitin Gadkari, Union Human Resource Development Minister Smriti Zubin Irani and Union Social Justice and Empowerment Minister Thawar Chand Gehlot are special invitees to the NITI Aayog. 
 
As NITI Aayog is expected to meet soon to review the 12th plan that runs up to 2017, there are concerns whether the government is going scrap Five Year Plans altogether. A section of economists has been arguing that the Five Year Plans should go along with the Plan Panel. Modi, too, has repeatedly said states should be given a free hand in determining their policies and plans, indicating that Five Year Plans are redundant. 
 
Another topic of debate is the classification of public expenditure in terms of revenue and capital, and plan and non-plan expenditures. Plan expenditure is spent on government programmes and schemes, while non-plan expenditure includes spending on defence, subsidies and devolution to states. The government has been trying to remove the distinction as it has become dysfunctional and an obstacle in outcome-based budgeting. As NITI Aayog assumes responsibility as the government’s economic think tank, one is curious as to how it would approach plan and non-plan expenditures. 
 
Given the multiplicity of NITI Aayog’s objectives—as a centre-state council, think tank and advisory body—its proposed structure seems to be cumbersome. Also, considering the untimely death of Planning Commission, which was not a Constitutional body and was not set up through legislation, one is forced to wonder about the fate of NITI Aayog, which too was not set up though legislation, in the long run. 
 
Image: Indiatimes

Will NITI Aayog Effectively Substitute Nehruvian Planning Paradigm?

In this year’s Railway Budget, <keyword id="6356597" type="PERSON" weightage="20" keywordseo="Suresh-Prabhu">Suresh Prabhu</keyword> increased plan outlay to Rs 1.21 lakh crore from around Rs 1 lakh crore in the previous Budget. 
However, it may be a bit of a stretch in view of the fact the Railways missed its revenue target this year and overall the performance has been dismal. 
1) He garnered just Rs 1.67 lakh crore as opposed to his expectation of gross traffic receipts of Rs 1.83 lakh crore in FY 2016. He expects revenues at 1.84 lakh crore, 10% growth on FY16 revenues. 
2) As far as passenger traffic goes, he had expected revenues to come in at Rs 50, 175 crore in FY2016, but it has come in at Rs 45, 834 crore. He now expects to see revenues at Rs 51,012 crore in FY 2017. 
3) Freight revenues are worst hit. Rs 1.21 lakh crore was expected in FY 2016. But it has just been Rs 1.13 lakh crore. He has set freight revenue target at Rs 1.10 lakh crore for FY17, lower than the targeted revenue in FY16. 
 
Overall, Suresh Prabhu has set gross revenue target at 1,84,820 crore for FY 2017, up 10% year-on-year. 
 
Notably, The Railways is about to incur an additional Rs 33,000 crore on salaries each year due to the Seventh Pay Commission which has bumped up salaries and pensions of its employees by more than 20%. 
 
However, Prabhu said he is expecting savings of Rs 8270 crore in FY 2016, which will compensate for the revenue shortfall in this fiscal year. 
 
He also said the Railways is expected to meet an operating ratio (expenditure incurred for revenue earned) of 90% this fiscal, against a target of 89% laid out in the Budget last year. This means Railway will spend Rs 90 to earn Rs 100. Significantly, at the beginning of this year, the Indian Railways was spending as much as Rs 97.8 to earn Rs 100 – a sign of worsening financial health and an operating ratio level not seen in more than a decade. For the next Budget, he aims at 92% on account of “increased expenditure because of the 7th Pay Commission.” 
 Prabhu also reiterated that the <keyword id="6406875" type="COMPANY" weightage="20" keywordseo="life-insurance">Life Insurance</keyword> Corporation of India (<keyword id="6367143" type="ORGANIZATION" weightage="20" keywordseo="LIC">LIC</keyword>) has agreed to fund Rs 1.5 lakh crore over next five years for construction of new lines and route electrification. It has already received Rs 2,000 crore by way of financial assistance to decongest corridors. In the last Budget, he had said, the Railways requires investments to the tune of Rs 8.5 lakh crore over the next 5 years which he hoped would come from <keyword id="6354424" type="ORGANIZATION" weightage="20" keywordseo="World-Bank">World Bank</keyword> and LIC. 
 
PROFITS AND LOSSES 
 
Earnings from freight till December 2015 were 6.2% more than what it achieved in the same period last year, the earnings are short by Rs 2,150 crore of its own target of raking in Rs 82, 676 crore. The situation was even grimmer when it comes to volumes. The railways reportedly carried only 8 million tonnes of freight more than last year by December 2015 while its target is to ferry 85 million tonnes extra by March 2016 which looks almost impossible to achieve. 
 
Similar was the case with passenger earnings which did not grow as much as expected, falling short of the target of Rs 35,042 crore by Rs 1,937 crore. 
 
This is not where the Railways’ financial troubles ended – it’s where they began. 
 
Moreover, the Railways knew it is about to incur an additional Rs 33,000 crore on salaries each year due to the Seventh Pay Commission. It now expects another 5 lakh personnel to retire in the coming decade, which means even more amount will have to be shelled out of its kitty in paying its former and current staff. Moreover, there is no clarity on the kind of expenditure the railway might actually end up incurring due to the seventh pay commission because there are many other allowances which haven't been taken into account, explained by Bibek Debroy, member of NITI Aayog. A large part of compensation is travel allowances which could add another Rs 8,000 crore. 
 
While the Railways finds itself buried under its own finances, the problem of low-demand being unable to boost freight revenues further exacerbates the situation. , The freight revenue is not growing as fast as the railways expected because of slowing economy and lukewarm demand which has resulted in wagons, line capacity, engines going unused and only accumulating further losses on upkeep and depreciation. 
 
Anticipating bleak situation, the railway minister had earlier even approached the finance ministry for additional funds but received a stern no for grant, followed by a 30% cut in the gross budgetary support from the central government. The finance ministry categorically rejected the Railways’ demand for grant in its communication and asked it to raise its own funds. 
 
Over the past years, railways has increasingly been dependent on central government grants and gross budgetary allocation to carry out its capital expenditure and network expansion activities, in addition to meeting overhead expenses. Coupled with increasing borrowings, the future doesn’t seem too bright for Indian Railways. It’s to be seen how Suresh Prabhu gets a cash-strapped Railways back on track.

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A rail regulator is coming up to recommend passenger and freight fares

BI India Bureau

BJP ministers to update party on work progress

BI India Bureau

Will NITI Aayog Effectively Substitute Nehruvian Planning Paradigm?

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More losses than profits! Read the real numbers here

Anushree Singh