A PROJECT

OF MANAGERIAL
ECONOMICS
& BUSINESS
ENVIRONMENT ON
RAILWAY BUDGET
2014-15

SUBMITTED TO:Dr. Ritika Gugnani

GAUTAM

FROM :PAVAN KUMAR

ROLL NO. PGFA

1431
SECTION- A

CONTENTS
History of Railway
Indian Railway
Contribution of Railway to Indian
Economy
Issues and Challenges
Railway Budget
Sources of Earnings &
Expenditure
Analysis & Conclusion
Bibliography

HISTORY OF RAILWAY
The first railway was started between Stockholm and Darlington Railway in 1825 it is
recognised as the starting of railway age, because this was the first time when railway used
steam locomotive and iron rails to run a train. With passengers of 38 and goods a train ran
between Stockton and Darlington. The railway line actually commenced in 1821, but it took 4
years to complete construction.

INDIAN RAILWAY
The first proposal for construction of railways in India was presented in 1844 by East India
Company in London by, R.McDonald Stephenson, & Great Indian Peninsula Railway
Company. The Railway Age dawned in India on 16th. April 1853, when the first train ran
from Bombay to Thana, a distance of 21miles(33.81 Km.)
Railway act 1890 was updated and removed by new railway Act 1989. According to this
Act Indian Railway was divided into 16 zones.
Those 16 zones are
1.southern 2.central 3. Western 4. Eastern 5. Northern 6. North eastern 7. South eastern
8.south central 9. Northeast frontier 10. East central 11.north western 12.East coast 13.north
central 14.south east central 15.south western 16. West central
Indian Railway is owned and operated by the Government of India through the Ministry of
Railways. Government of India enjoys the monopoly of controlling one of the largest
transportation system of the world. It is one of the world's largest railway networks
comprising 115,000 km (71,000 mi) of track over a route of 65,436 km (40,660 mi) and 7,172

stations. IR employs about 1.6 million people. It carries over 30 million passengers & 1.3
million tones of freight everyday. The longest platform in the world is at Kharagpur which is
2,733 ft. in length. Railway Station which has all the Three Gauges is Siliguri Railway
Station. One of the busiest railway station is lucknow. Indian Railway has the world's fourth
largest railway network after those of the United States, Russia and China.

CONTRIBUTION OF RAILWAY IN INDIAN

ECONOMY
The Indian Railways contributes to India's economic development, accounting for about one
per cent of the GNP and it is the backbone of freight transportation. It alone provides for six
per cent of the total employment in the organised sector directly and an additional 2.5 per
cent indirectly through its dependent organisations. It has invested major amount for
development of health, education, housing and sanitation. With its vast network of schools
and making investment in training, the Indian Railways plays a vital role for human resource
development .In 201314, IR carried 8,425 million passengers annually or more than 23
million passengers daily (half of which were suburban passengers) and 1050.18 million tons
of freight in the year. In 20132014 Indian Railways had revenues of 1441.67 billion
(US$23 billion) which consists of 940.0 billion (US$15 billion) from freight and 375.0
billion (US$6.1 billion) from passengers tickets.

ISSUES AND
RAILWAY
1.

CHALLENGES

OF

INDIAN

CAPACITY CONSTRAINTS

Capacity constraints is the most high density routes of railways. The trunk routes of the
railway which is 16% of total network carries 50% of traffic. These routes are totally

stretched and reached at a saturated level of capacity in terms of its utilization. For effective
managing capacity , utilization must not exceed above 80% of total given capacity.

2.

Reliability of Assets

It is necessary to improve assets reliability by use of upgraded track structure, better

maintenance practices improvement in locomotive and signal technology, Use of shared track
by freight and passenger traffic creates difficulty in its optimum utilization. Freight services
suffers the most.

3.

Safety

Safety measures in Indian Railway is the greatest challenge. Accidents leads to loss of
human life or injury or damage to railway property. Further, this also includes collision,
derailments fire in trains, accidents of rood vechiles with trains at level of crossings and other
specified types of miscellaneous trains accidents.

4.

Slow Speed

Speed of freight trains in Indian Railway is around 25Km/hr. Passenger services are
slow when compared to international standards . Maximum speed for Rajadhani/Shatabdi
express trains are 130Km/hr. and for mail and expressed trains are 110Km/hr. But, maximum
permissible speed in European countries are 200Km/hr. High speed corridors of Europe and
Japan has speed of 300Km/hr.

5. Door to Door services to handicap

Railway is unable to provide door to door services and transport to small volume of
handicap people.

6.

Project Execution

Indian Railway suffers from chronic shortages of funds. Availability of funds is very
limited for execution of projects and on the other hand time & cost factors adversely affect
the viability of the projects. Railways require 1,43,000 crore rupees to complete shelf on

going projects . It also requires an amount of 57,000 crore at sanctioned cost of 80,000 crore
for completing pending backlogs of these projects.

7.

New line projects

Of the 109 new line projects already sanctioned and taken on hand 8 are national projects
and 12 are financially viable. Others are sanctioned on socio-economic ground.
Railways face insurmountable pressures to add more such projects each year, but are unable
to earmark more than Rs.1500 crores per annum for these projects. Needless to say, the
amount is barely sufficient to neutralize the annual escalation in cost. At this rate,
the projects would languish forever.

8.

Technology Upgradation

Indian Railway is trying its best to adopt international best practices for development
infrastructure, construction induction, maintenance, operation. Railway needs to cover the
gap of developed railways by compressing technology adoption on continuous basis with
view to achieve steady improvement in cost of operations and quality of services.

9.

Upgradation of quality of services

Increase in population , prosperity and urbanization fuels the growth of passengers in

railways. Therefore, demand for development of modern passengers station and terinals, redesign of trains with pleasant, soothing colors and interiors with green toilets increases.

10. Quality of freight services

Railway is facing problem in developing special purpose rolling stock to suit specific
needs of customers and ability to promise and occasional peaking of demand and mismatch
in rolling stock procurement programmes have at times exposed Railways to risk of losing
customers loyalty.

11.

Redevelopment of stations

Many stations in urban cities handles more passengers than combined numbers
handled by all airports of country together. Stations are inadequately , designed and are not
equipped to handle such large number of passengers. Inter-platform connectivity is through
foot over- bridges., platform are also used for parcels, lack of sustainable waste management
practices, lack of good quality of waiting spaces are major issues.

RAILWAY BUDGET 2014-2015 FOR REVIVAL

AND DEVELOPMENT OF INDIAN RAILWAY
The new Railway minister Mr. D.V. Sadananda Gowda presented the first Railway Budget of
the Modi Govt. in parliament on 8, July 2014.
The major thrust of the railway budget includes:
1.Budget 2. Project Delivery 3. Passenger Amenities/Services with focus on food services &
on cleanliness, sanitation, toilets. 4. Financial Discipline 5. Resource Mobilization 6. IT
Initiatives 7. Transparency & System Improvements.

Achievements

State of Meghalaya and capital of Arunanchal Pradesh to be on railway map by this

year.
XIth 5 year plan targets exceeded in new lines(2207km), doubling(2758km), and
electrification(4556km), acquisition of wagons(64875).
Production commenced at new factories- Rail wheel plant, Chhapra; Rail coach
factory, Rae Bareli; Diesel component Factory,Dankuni.
Specially designed coaches for adverse weather condition for rail travel in Kashmir.
Successful development of Corosion resistant, lighter wagons with higher pay-load
and speed potential upto 100km/hr.

Passenger Amenities/Services and Station Management including

cleanliness & Catering

Provision for foot over bridges, escalators, lifts, etc at all major stations including
through PPP route.
Provision of sufficient water supply, platform shelters and toilets
Battery operated carts for differently abled and senior citizens at platforms of all
major stations.
Expanding scope of online booking of train, coaches, berth & chair car.
Introduction of ready to eat meals of reputed brands in a phased manner.
Substantial increase of 40% in budget allocation for cleanliness.
Extending use of CCTVs at station to monitor cleanliness activities.

For improving safety and security

No unmanned Level Crossing

Improved audio-visual warning to road users in advance of approaching trains.
Introduction of indigenously developed trains collision avoidance system.
Development of crashworthy coaches.

Provisions of vigilance control device in all locomotives.

Various measures to prevent fire accidents:
Fire retardant materials
Multi-tier protection for in coaches
Portable fire extinguishers in coaches
Induction based cooking to replace LPG in party cars
Intensive checks against explosive and inflammable materials

Resource Augmentation

PPP through BOT and annuity route and identification of 8 to 10 capacity

augmentation projects on congested routes.
Facilitating connectivity to new & upcoming ports through PPP
Speedy work on critical coal connectivity lines to bring nearly 100MT of incremental
traffic to railways and facilitating faster transport of coal to power houses.
Setting up of Logistics Parks to modernize logistics operations; Top priority to
mechanization of loading and unloading.
Pilot project for automatic rebate to customers offering traffic through computerised
FOIS system.
New design of parcel vans with better tare to pay load finalized.
The government has planned to establish an electric locomotive factory at Madhepura
in Madhepura district and a diesel locomotive factory at Marhowrah in Saran district,
both in Bihar. The two projects are estimated to cost Rs.1,294 crore and Rs.2,053
crore,
Following the commissioning of the projects, over a 10-year period, the factories will
provide Indian Railways with 800 electric locomotives of 12,000 hp each and a mix
of 1,000 diesel locomotives of 4,500 hp & 6,000 hp with high-level performance
guarantees similar to international practices. The locomotives manufactured at both
these factories will be fuel efficient and help mitigate the adverse impact of
greenhouse gases.
During the on going 12th Five-Year Plan, the Ministry of Railways has given inprinciple approval for various PPP projects in the railway sector
PROJECTS
High
speed
corridor(MumbaiAhmedabad)
Elevated rail corridor(churchgate-virar)
Redevelopment of stations
Logistics parks
Private freight terminal and other freight
schemes

INVESTMENT IN CRORE
20,000
20,000
10,000
3,000
2,815

Port connectivity projects

Sonngar-Dankuni DFC

5,000
10,022

Loco &coach manufacturing units

3,000

Energy Projects
Total

6,000
79,837

Modernisation and Technology Induction

Bullet train proposed on Mumbai-Ahmedabad

Setting up of diamond quadrilateral network of high speed railconnecting major
metros and growth centres of country;Rs.100 crore provided for initiating projects.
High speed trains
Joint feasibility study by India and japan for Mumbai Ahmedabad corridor to
be co-financed by Japan International Cooperation Agency
Exploring low cost option of speeds 160-200 km/hr on selected routes.

Green Initiatives

Green curtains along the track close to major stations; pilot work at Agra and Jaipur.
Coverage of bio-toilets in 2,500 coaches and would be increased progressively.

IT Initiatives including Revamping Reservation System

E-ticket to support 7200 tickets per minutes to allow 1,20,000 users.

Paperless offices in railway in 5 years.
Wi-fi services in A1 and A category stations and in selected trains.
Real time tracking of trains and rolling stock.

Financial Health

Rail infrastructure by cost sharing arrangement with state government; Karnataka,

Jharkhand, Maharashtra, Andhra Pradesh, agreed to several projects.
Several Public Private Partnership projects are in pipeline.
FDI being enabled to foster creation of world-class rail infrastructure.
Rail Land Development Authority raised 937 crore Rs. So far.

Revenue Freight Traffic

Carrying capacity +9 tonnes +1 tonne routes being planned.

Carrying capacity of 20 feet containers increased by 4 tonnes.
Parcel Terminals & Special parcel Trains with scheduled timings.
New policy on parcels to encourage transportation of milk.

SOURCES OF EARNING REVENUES AND

EXPENDITURES FOR RAILWAY IN BUDGET
2014-2015
Earnings of the Railway for the year 2014-2015 is estimated to be 1,64,374 Crore, and
proposed expenditure is about 1,49,176 Crore

Earnings & Revenues

Leveraging Railway PSU resources- PSU are financially sound and it can help in
bringing surplus fund for railway & PSUs investment in infrastructure project of
railway will generate attractive returns.
Private investment in rail infrastructure through domestic and Foreign Direct
Investment- Internal revenues sources & government funding are insufficient to meet
the requirement, therefore there is proposal to get FDI in railway sector
Public Private Partnership- Bulk of the future projects is financed through PPP mode
including high speed rail which require huge investment.
Freight income- There will be growth in freight traffic of 4.9 % which is 1101.25
million tonnes. Earnings from freight traffic is estimated to be 105770 crore Rs.
Passengers income- The fare revision will generated income of about 44,645 crore Rs.
A proposal was made to scale down market borrowing through Indian Railway
Finance Corporations to 14,688 crore. Resources from PPP are kept at interim level.

Finance minister extended additional budgetary support of 1,100 crore as capital and
273 crore as railway share from diesel cess for important road safety work.
Rail Viks Nigam ltd. will Borrow Rs.254 crore from market.
To support its projects and functioning of the Ministry, the budget allocated the
highest ever annual plan outlay of 65445 crore, increase of 10% over the previous
years revised estimate with gross budgetary support of 32300 crore.
Rs 6,005 crore is to come through the PPP route. "This money is needed to plan for
the bullet trains to carry out studies about feasibility and alignment, etc," Kumar
said. The Japan International Cooperation Agency (JICA) has conducted a detailed
study for running a bullet train on the Mumbai-Ahmedabad route.

RAILWAY RUPEE
Rupee came

Miscellaneous
receipts;
2%
Sundry
other earnings;
earnings;
3%
Other
coaching
3%
Passenger earnings; 25%
Good traffic earnings; 67%

Railway Expenditure

In the past 30 years Of the 676 projects announced, worth 1,57,883 crore only 46%
has seen light of the day whereas nearly 359 projects are yet to be completed entailing
total cost of 1, 82,000 crore.
Another project that has received significant thrust is the bullet train. With nearly
60,000 crore required to run each train, the Railway Minister envisages running a
bullet train along the Mumbai-Ahmedabad corridor.
In order to create a safe and mishap free superior railway system, it is estimated to
cost 40,000 crore towards track renewals, elimination of unmanned level crossing and

construction of railway-under-bridges and railway over bridges. The budget

apportioned a sum of 1785 crore towards Rub/Rob.
Working expenses has ben proposed at 1,12,469 crore Rs. Which is 15,078 crore
higher than 2013-2014
Pension grown in 2013-2014 about 16% , keeping the same trend pension provision is
kept at 28,850 crore Rs.
Proposal was made to increase the planned outlay under budgetary sources to 47,650
crore Rs. Which is higher by 9,383 crore in 2013-14. A large part of this outlay will be
spend on safety measure issues.
The government is focusing on key projects in the hilly and North-East regions of the
country together with last mile connectivity for ports and mines. Consequently, the
government increased the outlay by 54% for North-East projects to 5116 crore.

RAILWAY RUPEE
Rupee went

6%
1% 8%
34%
4%
4%
17% 5%

3% 18%

Staff Wages &

Aiiowances

Fuel

Stores

Depreciation reserve
fund

Pension Fund

Lease Chareges

Dividend

Capital Fund

Development fund

Miscellaneous

RAILWAY BUDGET KEY HIGHLIGHTS

2011-12
Gross
revenue 1041110
receipts (crore)
Growth yoy (%)
Ordinary
working 74537

2012-13
125680

2013-14
144168.8

2014-15
164374.3

20.7
84400

16.7
96500

14.0
112649

expenses(crore)
Operating ratios(%)
Change (bps)
Freight loading (mt)
Growth yoy (%)

94.9

90.2
-472.8
1007
3.8

970

87.4
-251.5
1047
4

92.4
-106.5
1101
4.8

Expected gross traffic receipts FY 2014-15

Crore
Passenger earnings
Growth yoy (%)
Coaching earnings
Growth yoy (%)
Freight earning
Growth yoy (%)
Sundry earnings
Growth yoy (%)
Suspense
Growth yoy (%)
Total earnings
Growth yoy (%)

201112
28246.
4
2716.5

69547
3643
-43.2
10411
0.3

201213(BE)

201213(A)

201314(BE)

2013-14(RE)

36073
27.7
29940
10.2

31322.8
10.9
3054.2
12.4

42210
34.8
3422
12

37500
-11.2
3665
7.1

89339
28.5
4096
12.4
50
-215.7

85262.6
22.6
4261.4
17
-168.4
289.9

935540
9.7
4506
5.7
50
-129.7

9400
0.5
5284
17.3
50
0

132552
27.3

124732.6
18.8

143742
16.2

140499.8
-2.3

201415(BE
)
44645
19.1
4200
14.6
10577
0
12.5
5500
4.1
50
0
16016
5
14

Expected expenses allocation

CRORE
Ordinary
working
expenses
Growth yoy (%)
Depreciation Fund
Growth yoy (%)
Pension Fund

2011
-12
7453
7
6520
1764
0

201213(BE)

201213(A)

201314(BE)

201314(RE)

2014-15(BE)

84400
13.2
9500
45.7

84012
12.7
6850
5.1

96500
14.9
7500
9.5

970160
0.6
6500
-13.3

112649
16.1
68500
5.4

18500

20710

2200

23700

28550

Growth yoy (%)

Total Working Expenses
Growth yoy (%)
Operating Ratios
Change bps (%)
Dividend Payment
Growth yoy (%)
Excess

4.9
9945
0
95.5
5656
1126

112400
13
84.8
-1072.7
66760
18
1557

17.4
11157
2
12.2
90.2
537.5
5384.9
-5.4
8266.3

6.2

7.7

20.5

126000
12.9
87.7
-251.5
6249.2
16.8
13146.8

127260
1
93.5
584.3
7839.9
25.5
7943

148049
16.3
92.4
-106.5
9135
16.5
606327

Explanatory Notes
Other sources of earning
1. Coaching earnings include income from parcels and luggage
2. Sundry earnings represent earnings from lease of railway land, advertisement and publicity
etc.
3. Suspense represents unrealized traffic earnings

Performance parameters
4. Net Surplus after payment of Dividend represents excess of receipts over expenditure
after the Dividend liability (payment for investment in Railway capital) of General Revenues
has been paid off
5. Operating Ratio is the ratio of operating expenses to receipts. A lower ratio indicates
higher surplus availability for investments.

Railway Funds
6. Depreciation Reserve Fund Finances the cost of new assets replacing old assets including
the cost of any improved features. Appropriation to this fund are made on the
recommendations of the Railway Convention Committee (RCC)
7. Pension Fund Finances all pension payments to retired Railway staff
8. Development Fund Finances expenditure on Passenger and Other Railway Users
Amenities Works, Staff Welfare Works, Un-remunerative operating improvements etc

Railway Earning in (crore)

Earning from passanger & goods

120000
100000
80000
60000
40000
20000
0

Working Results in (crore)

Passenger
Goods

180000
160000
140000
120000
100000
80000

Gross Traffic Receipts

60000

Total Working Expenses

40000
20000
0

Operating Ratio (in percentage)

Percentage
93
92
91
90
89
88
87
86
85

Percentage

Excess

crore
14000
12000
10000
8000
6000
crore

4000
2000
0

Analysis and conclusion

In 2013-14 loading was of 1,008 million tonnes and it surpassed the actual target of 1,007
million tonnes and in the year 2014-15 target is of 1101 MT which is 94 MT more than 201314.Operating ratio in 2013-14 was 90.2% but in current FY 2014-15, the surplus of the
railway is expected to decrease by 24% to Rs 6,064 crore and this will increase the operating
ratio to 92.5%. Gross traffic receipts are expected to increase to Rs 1,60,165 by 14% over
2014-15 on account of the recent hike in freight rates and passenger fares. Passenger fares
were increased by 14.2% which was inclusive of 4.2% Fuel Adjustment Component (FAC).
Freight rates were increased by 6.5% (inclusive of 1.5% FAC). According to the Ministry, the
FAC will be linked to fuel prices to cover the revenue which will arise from increase in fuel
cost. The hike in passenger fares was to reduce losses in passenger business that increased
from 10 paise per passenger per km in 2000-01 to 23 paise in 2013-14.
Some of the key deviations in the revised estimates compared to the budget estimates in
2013-14 are:
Total revenue in 2013-14 undershot budget estimates by Rs 2,458 crore.

Total expenditure overshot estimates by Rs 1,155 crore.

The net surplus was lower by Rs 5,204 crore.

Appropriations to the Railways Capital Fund was lower by Rs 875 crore.

This Railway Budget focuses on planned investment of Rs 65,445 crore in 2014-15 when
Compared with 2013-14, there is an 3% increase with the extra funds coming largely via
Gross Budgetary Support (an increase of 16%). The main focus of the investment will be on
safety related works. Since the internal resource component has been increased, the Extra
Budgetary Support or market borrowings have been scaled down by 16%. Keeping fiscal
discipline in mind, railway did not announced any new projects. Infrastructure will be
developed with the help of FDI and public private partnership due to lack of internal resource
generation and government funding. Railway will also make use of its vast land resources to
generate revenues. Budget was divided into two parts first includes implementing past
proposed projects of last 10 years in action, second includes big vision ideas like bullet trains
and diamond quadrilateral of high speed rail networks.
58 new trains will be introduced, of which is premium (five), AC Express (six) and Express
(27) categories which attract higher fares, and just five Jansadharan (unreserved) trains and
eight passenger trains. FDI can come in automatically (automatic route) or through
Government approval (approval route). If FDI in railways is allowed under approval route,
national security concerns can be looked into by Foreign Investment Promotion Board
(FIPB).
KAUTILYA saidIn
the
happiness
of
the
people
lies
the
Rulers
happiness
Their
welfare
is
his
welfare
What pleases him, the Ruler shall not consider good but whatever pleases his people
the Ruler shall consider good

BIBLIOGRAPHY
http://www.irfca.org/~mrinal/history_ir.html
http://en.wikipedia.org/wiki/Railway_Budget
http://indianexpress.com/article/india/politics/rail-budget-highlightssadananda-gowda/
http://zeenews.india.com/business/indian-budget-2014/railway-budget2014-full-text_103436.html