Thursday, March 10, 2022


 

STRENGTHENING INDIAN RAILWAYS

CONTRIBUTION TO THE ECONOMY

 


Initiatives and Achievements of Indian Railways (IR)

1. Indian Railways be complimented for National Railway Plan (2030) which addresses Network congestion by rapid capacity augmentation of 5,571 Km of very high density network. Prioritization has been done by classifying criticality of projects with a total outlay of Rs 7.5 lakh Cr.

2.  Vision 2024 focuses on Port connectivity, coal evacuation, J&K projects and North East connectivity for completion by 2024.

3. Delhi- Mumbai and Ludhiana– Delhi– Sonnagar Dedicated Freight Corridor (DFC) projects (Total 2800 km), to run long haul goods trains at a speed of 100 kmph potential which is planned for completion by 2023. Construction activities in the high speed Mumbai-Ahmadabad project, held up earlier by land acquisition problems have gathered momentum.

4. Achievement of IR has been on safety with no serious passenger Train Accidents during period 2019-20 - 2020-21 by expediting replacement of over aged assets / track renewals, elimination of unmanned level crossings and replacement of old coaches by new safer Linke Hofmann Busch (LHB) coaches.


CONCERNS AND RECOMMENDATIONS

5.  These include recent trends of high operating ratios, low generation of internal net surplus revenues leading to low funding for safety, capital and rehabilitation works. The Parliamentary Standing Committee (2019-20) on Railways also made observations on above concerns.

6. Losses in Passenger Operations. These have mounted to over Rs 50,000 Crs annually. IR needs to address this issue urgently by a progressive increase in fares and seek State & Central Govt support for taking over suburban losses. High Staff costs (60% of working expenses) will need to be reduced by freezing some percentage of vacant posts, progressively.


7. Uncertainties in Future Coal Freight Earnings. Presently these contribute to around 48% of total freight earnings. Demand will come down in future because of carbon emission/climate change issues. Economic Survey (2019-20) has stressed need for IR increasing its share of freight traffic from around 27% to 45% by 2030 in rail/road freight mix from energy conservation/ carbon emission angle. This will be challenging.

8. Financial Performance. 2019-20 ended with Gross Traffic Receipts Rs.1,89,906.58 Cr and Total Working Expenses Rs 1,84,780.30 Cr. The Net Revenue Receipt was only Rs 3,773.86. The Average rate paise/passenger Km was 20.7 in Suburban & 52.4 in Non Suburban.

9. Standing Committee on Railways has revealed a consistent fall in revenues, rising expenditure coupled with erosion of customer base in freight and passenger traffic. There has been increasing dependency on Extra Budgetary Support. Prudence demands of not over reliance on market borrowings. Committee suggested that a part of pensionary payments burden be taken over by Ministry of Finance.

Passenger and Suburban Losses

10. IR is incurring losses over Rs 50,000 Crs annually on passenger/ suburban operations. Survey shows that economic categories can absorb price rises.

11.  Suburban Segment. Mumbai Rail Vikas Corporation (MRVC) report states that Mumbai locals have cheapest public transport at 50 paise per km vis Metro at Rs 5 for a km, and BEST at Rs 4/km. There is Considerable scope to increase Suburban fare.\

12. Long Distance Passenger Segment. Buses are popular for distances around 250 kms. However, Rail scores over with sleeper facilities and need to adopt dynamic pricing for reserved accommodation for trains like Rajdhani– Delhi- Mumbai. Other Rajdhani’s and new fast trains, semi high speed Vande Bharat and special trains run more than 30 per day. There is a need for running some trains with chair cars, especially with upgradation of trunk routes up to 160 kmph. Coaches be fitted with seats with airline type ambience, better designed toilets and heating ovens for food. Platform & travel tickets should include insurance for accidental injuries and ticketless drives must be intensified.


13. Dedicated Freight Corridors. With diversion of Goods trains to DFC from trunk routes, released capacity should be judiciously utilized for new high revenue segments e.g. running of high speed, time tabled, high value parcel trains. To enable pickup and delivery to doorstep, IR should collaborate with cargo couriers/ operators to help in last mile delivery.

14. Special Measures to attract additional Freight to enable IR to reach a share of 45% in Rail / Road Freight Mix. Railways involved in movement of raw materials for steel and large cement plants must focus on greater share of finished steel products and cement and deliver them to specified stockyards or cluster of their warehouses in the region by cooperation with Road Operators. Road transport scores over IR in delivery time. Therefore IR should cut terminal delays and enroute detentions. While Kisan specials have been planned, Milk traffic needs focus with development of refrigerated wagons. IR must effectively integrate into PM Gati Shakti program.

15. Terminal Development. Focus on terminal development especially on PPP mode can help improve efficiency, reduce terminal detention with mechanised handling, providing good road access and locating warehouses near loading points. Railways will have to ensure timely delivery of wagons and withdrawing after loading.

 

16. Need for Compulsory Shift of Medium Distance Heavy Road Freight Traffic to Railways through Policy Initiatives to progress PM’s commitment of Zero Emission India by 2070. Railways consume only 1/6th energy required by road transport. With 100% electrification of IR and progressive increase of Renewable Energy in the National Grid reaching 50% of total mix by 2030, there will be further reduction in carbon emission if freight traffic from road is shifted to Railways. Govt. will have to hasten the issue of shifting of heavy Road freight to Rail as this cannot be left to market forces. While electric mobility is being encouraged with incentives, bulk of the movement on Highways will still be on fossil fuels for a long time.

17. NITI Aayog, has advocated a Multi Modal approach to transportation covering Railways, Roadways and Waterways. It is understood the European Union is planning greater importance to Rail transportation by higher tolls on road. NITI Aayog may be entrusted with preparing policy guidelines for Road Rail Freight shift after consulting concerned Ministries, Industry and Road Operators.

18. Planning future Dedicated Freight Corridors Alignment Based on Energy Saving Criteria. In case of Delhi–Howrah, Delhi–Mumbai DFCs, where alignment has been planned adjacent to existing trunk routes, planning for future DFCs be attempted on shortest feasible alignment. NHAI has shortened its Mumbai-Delhi route alignment on this pattern to ensure considerable energy saving. Future DFCs should be planned for 32.5 ton axle load wagon running. New DFC alignment should be connected whenever interchange is required to PM Gati Shakti intermodal points. DFC may also provide adequate land in the central verge to plan rapid transit rail systems to cater for Metropolitan/Tier1 cities to reduce overall land costs.

19. Monetization of Assets. There is huge potential of monetizing land at Stations and Railway Colonies in metropolitan cities. Due to complexities involved, there is hardly any visible outcome in policies.

 

20. Corporatization of Railway Production units – Privatization of Railway PSU’s Retention of Majority Control in RailTel. Govt needs to hasten Corporatization of Railway Production units to enable them to reach their full potential to serve the needs of economy beyond Railways e.g. Defence sector.

21. RailTel PSU. With monopoly in Optic Fibre Cable laying (OFC) IR has completed over 60,000Kms which is nearly entire IR system. It is also providing support to Railways (24X7) in traffic operational systems including signaling safety between stations, Anti train collision protection systems (Kavach), traffic control management, radio communication to stations besides add on services. Rail Tel is also involved in providing communication support to many Govt/ PSU units, and organizations involved in National security. For Govt control, disinvestment of RailTel be restricted to 49%.

22. Austerity measures in Revenue Expenditure and Careful Project Selection/Reducing Project costs. Railways need to prune down Revenue expenditure and Project costs. It must explore low cost options like improved signaling by introduction of more Centralized Traffic Control (CTC), Automatic Block Signaling (ABS) prior to planning for additional routes involving land acquisition.

23. Financial Interventions for Consideration. When unremunerative projects are undertaken with External Benchmark Rate (EBR), prior approval of Ministry of Finanace (MoF) be taken. Market borrowing be restricted to 10% to 15% of capital outlay till internal revenue generation situation improves. A new model be instituted by MoF to demarcate commercial and social responsibilities of Railways and support funding by Ministry of Railways and Ministry of Finance.

24. Pricing. There is distorted pricing due to non-revision of fares for Passenger segment. Further, there is loss in suburban traffic with more projects in the pipeline. It is suggested that like the Highways, an act/ rule be contemplated with annual revision of fares linking these to indices like WPI etc. Taking a leaf from the ‘Bad Bank’ set up by the MoF for bad

debts suburban trains system be hived off into an independent entity from financial angle by creation of a special financial structure supported by contributions from Central, State Govts & IR to share losses. Operations to continue with IR.

25. Need For a Full Fledged Railway Regulator. Considering that the PPP model is increasing, there will be need for a full fledged Railway Regulatory mechanism to sort out issues between private operators and IR. With shift of Heavy Freight Road Traffic to Railways, it is desirable for one common regulator for the entire transport sector in future.

26. Building Human Capital in Railways. Keeping in view technological upgradations, it is important Railways pay adequate attention to quality of staff recruited at lower levels. Depending on the competence required, standards similar to Army Recruitment system be implemented. Railways bonus system be restructured for different categories of staff which will lead to overall higher productivity.

27. While restructuring the Railway Board on non departmental lines is welcome, ignoring needs of technical/ professional specialization at lower levels may affect professional performance of the organization. Technical departments be retained below the Apex level of the Railway Board. The Indian Railway Medical Service (IRMS) cadre can be created from Divisional Railway Manager (DRM) and above level consisting of all the general posts like AGM, SDGM/CVO, CPO, CPRO, GM etc.

Suggested Focus for IR for 2030

28. Indian Railways should strive to become low cost, efficient, safe, profitable and zero emission transporter of Passengers & Goods. By integration into PM Gati Shakti program, IR should become the backbone of National multimodal transport network.

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Tuesday, January 18, 2022

RECOMMENDATIONS FOR BUDGET : 2022-2023

 

RECOMMENDATIONS FOR BUDGET : 2022-2023




GENERAL

1. As per the latest data, 19 out of 22 high frequency indicators relating to all sectors have returned to, or surpassed, pre-pandemic levels. Indian economy grew 8.4% in the September quarter exceeding estimates. It is highest among major economies and is well ahead of the Chinese at 4.9%. 

Focus of the Budget

2. Capital Expenditure (Capex) and infrastructure development will continue to be one of the major growth engines in 2022-23 and these will be based on Rs 111 Lakh Crores National Infrastructure Pipeline and the PM Gati Shakti.

RECOMMENDATIONS


Strategy to deal with Mutating Strains

3. Complete lockdown should be avoided. Emphasis must be to keep as much economic and social activity going on as possible. Along with vaccinations, booster shots and annual shots subsequently, must be planned. As per international experience, a cocktail of different vaccines will be more effective than any one vaccine.


Landscape for Future Reforms



4. There is a wrong notion that reforms make the rich richer and the poor poorer despite evidence to the contrary. People still cannot distinguish between pro-market and pro-business. Farm laws were a victim of this misconception. Reformers failed to convince people about the competitive market. Reforms need to be legislated and implemented through accommodative politics.

COP-26 (Conference of the Parties)
5. India, as a developing economy, must ensure for adequate space for its development against western attempts to impose curbs that would limit India’s development options. Western Climate Change agenda smacks of “Carbon Colonialism” and “Carbon Imperialism”.The new message on climate action should also define India’s approach to foreign trade.

Hydro Projects – Carbon Intensity
6. India has recently committed to bring its non-fossil energy capacity to 500 GW by 2030 and bring its economy carbon intensity down to 45%. Govt needs to bring out a policy for takeover of stalled private hydro projects by PSUs namely National Thermal Power Corporation Limited (NTPC), National Hydroelectric Power Corporation (NHPC) and Satluj Jal Vidyut Nigam (SJVN) and others.

Fiscal Deficit
7. Fiscal deficit for April-October was at a 4 year low of Rs 5.5 Lakh Crore or 36% of the budget estimate. The Budget target for the Fiscal Deficit is pegged at 6.8% of GDP. To achieve the target, Govt needs to go ahead aggressively with disinvestment and LIC public offer. There is a needs to rework the Fiscal consolidation plan and budget for higher spending and deficit during the next Financial Year as the economy is not out of the woods yet.

Inflation Management
8. India need not sacrifice economic growth to control inflation. Rather, Centre and States should further reduce excise duty on fuel, petrol and diesel to reduce price pressure on economy. RBI has to continue with accommodative stance of monetary policy to ensure that durable economic recovery takes root. Equilibrium needs to be maintained between inflation and growth.

USD 5 Trillion Economy
9. India’s goal of becoming a USD 5 trillion economy by 2024-25 is likely to be set back by about 3-4 years in an optimistic or business as usual scenario and may have to wait till 2029-30 in a worst case scenario. Govt must announce a roadmap target to achieve the goal.

Employment
10. Jobs cannot be created unless there is sustained economic activity. For this Government must spend without worrying about a near term spike in the fiscal deficit. Redeploying skilled jobs to India from other countries is a huge opportunity that can be tapped only if economic recovery is sustained. To sustain recovery and generate employment Government must catalyse large scale Investment in social & physical infrastructure.

Exports
11. India is on course to achieve USD 400 Billion of Merchandise Exports during the current financial year. Also, on the services side, the target is to achieve USD 150 Billion. Most of the foreign direct investments coming into India are aimed primarily at the domestic market. Export oriented Western FDI continues to skirt India, with impetus to the East. Foreign trade policy needs to address this issue.

12. There is an immediate need to augment flow of empty containers to help in meeting the above milestone of merchandise exports. Shipping Corporation of India be asked to take on lease a few ships for sailing to our major export and import destinations.

13. Immediate Govt intervention is required to look into freight hike and imposition of various charges by Shipping lines. Govt should provide freight support to all exports till 31-03-22 as freight rates have sky rocketed.

Free Trade Agreements (FTA)


14. Currently India has FTAs with 5 countries bilaterally and 18 countries multilaterally (11 Member Countries of the ASEAN and 7 of the South Asia Free Trade Agreement), 4 more are under discussion; these include bilateral
deals with Australia, UK and UAE and Multilateral agreement with European Union, which has 27 Members.

15. It needs to be ensured that FTA or Early Harvest Agreements (EHA) does not result in adverse developments for India. Further, there is no adverse effect through an inverted duty structure.

Foreign Trade Policy
16. The existing policy valid for the period 2015-2020 has been further extended till March 2022 due to Covid 19 pandemic. It is an opportunity to overhaul it. Need to enlarge our product basket and explore new geographies. International Trade will henceforth be largely strategic, resilient and preferential. Accordingly, India’s trade policy will need major adjustments to operate effectively in such an environment.

17.India needs to attract global brands which are keen to setup shop in India. Need to provide them with incentive in the area of Land, Labour & Legislation.

18.Use Government procurement from a prospective date of Policy, For instance, invite bids for procurement of 1 GW of Solar Panels on the condition that 90% value addition takes place in India and that procurement would be for 5 years from the date Production and Supply commences.

Real Exchange Rate
19. Adoption of Policy preventing appreciation of the real exchange rate. India is unusual in experiencing real exchange rate appreciation which has an adverse impact on domestic production and employment

Privatization
20. Govt has budgeted to mop up Rs 1.75 Lakh Crore in 2021-22 through disinvestment but so far its disinvestment receipt is around Rs 10,000 Crore. An aggressive and strategic policy is required to achieve the target. This will also facilitate in managing fiscal deficit. Government must announce an LIC IPO during this fiscal year.
 
Labour Codes
21. Notification of rules to implement labour codes namely on wages, social security, occupational safety and industrial relations, passed by the Parliament, is still pending. Steps need to be taken to notify the same through accommodative politics.

Land Pooling as Land Acquisition Model
22. Acquisition of Land has been one of the major hindrance for enterprises considering investing into India. Central and State governments have been focusing on massive land reforms for the benefit of the industry. Land pooling is a land acquisition strategy where ownership rights of privately held land parcels are transferred to an appointed agency, with these land parcels being pooled as a result. The agency uses some of the pooled land for infrastructure development and sale, while the rights to new parcels in the pooled land are transferred back to the original landowners in some proportion to their original property.

Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS)



23. Work demand under this scheme continues to be high. However work generated has not kept pace with the demand due to restricted fund flow. Considering that the demand for work is expected to rise further in Jan-March 2022 period, a supplementary, budgetary support of about  Rs 50,000 Crores is required. In future, outlay must be tied to revised/actual estimate of actual expenditure for the scheme each year. The scheme suffers from a budgeting problem.

Front loading of GST and Shareable Taxes dues
24. The Centre released around Rs 95,000 Crores instead of Rs 47,500 Crores from shareable pool of taxes to States to enable them to deploy more money on Capital spending as was done in case of GST compensation this year. Central Govt should continue with release of front loading of dues to States in a more liberalised manner to enhance capital spending.

Judicial Reforms
25. As per international research published in 2018, failure to deliver timely justice has cost the economy as much as 9% of its annual GDP. It also impacts foreign investment due to lack of confidence of investors. To ramp up judicial infrastructure there is a need to create National Judicial Infrastructure Authority of India with statutory backing. Further, need to digitize court records, including orders, judgements and filings. This will bring transparency and accountability. Also need to consider live streaming of judicial proceedings.

Railway Reforms



26. Cross subsidisation of passenger fare with railway freight need to be considered to lessen burden on Indian industry. There is a need to Corporatize Railways and outsource the support services and new passenger trains to private entrepreneurs on selective basis and introduce the concept of PPP model for high speed projects.

Agri Reforms
27. There is a demand for Minimum Support Price (MSP) for all agricultural produce. At present the Government has announced an annual MSP for 23 crops. But effectively, it is maintained only for few crops like paddy, wheat and soyabin since there is no legal provision to implement the pricing.

28. According to an expert estimate assuming only 10% of the production of remaining 19 crops (excluding sugarcane) is procured, it will cost the government about Rs 5.4 lakh crores annually. Better alternate to MSP and other Agri Reforms are ;
  • Direct transfer of money to farmers account based on income policy on a per hectre basis
  • Invest in Agri R&D
  • Connect farmers to lucrative markets, domestic and external.
  • Building efficient value chains
  • Right for the farmers to choose the best technologies and markets
  • Enhance priority sector lending to agriculture
  • MNREGS should be linked to all farming activities
  • Extend PLI scheme to agricultural produce and activities

Tea Industry
29. Tea Act 1953 has outlived its utility and is counterproductive to the concept of Atmanirbhar Bharat. Export of tea has come down to 0.5% of total export from 40% in 1953. The Tea Act and Board needs complete overhauling to make Indian tea industry globally competitive and take due care of tea industry workers and labour.

MSME Credit Scheme
30. The emergency credit line guarantee scheme which ends on March 31st 2022 needs to be extended in the next financial year to give liquidity support in the wake of new covid variant. This will be helpful to over 10 Million enterprises protecting about 54.5 Million jobs. Also focus on faster clearance of pending dues, rationalisation of compliance requirements and tailor made fiscal package for first time MSME borrowers.

Reinventing Health Infrastructure
31. The Govt must increase its investment in Health sector significantly to atleast 2.5-3% of GDP by 2025 from 1.29%. Need to focus on Tele-medicine facility, manufacturing of “off-patent” medicines, Pharma park.

National Asset Monetization Plan
32. To achieve the target under this plan, the Govt should set up an asset monetization monitoring authority to look into various aspects of monetization namely valuation, pricing, under/well utilised assets, contract management, timely arbitration and speedy conciliation.
 

Education



33. Increase Budgetary allocation for Samagra Shiksha Abhiyan (SMSA) aimed at providing holistic education from pre-school to senior secondary level. This is imperative as Covid-19 pandemic has not only widened learning inequality among children but has left many of them out of schools due to inadequate resources and digital illiteracy.

Rationalise Centrally Sponsored Schemes
34. The government should consider rationalising 131 centrally sponsored schemes as recommended by 15th Finance Commission, so that spending could be more effective and targeted towards the beneficiaries.

DIRECT TAXES

New Global Tax Regime
35. MNCs will no longer pay taxes in the country where they are registered but would have  to pay in the country where they generate their sales.     A minimum Global tax of 15% on profits would be introduced in all countries with effect from 2023. For this India would have to reconsider equalisation levy, and has to align Direct Tax Code with the concept of global minimum tax. Equalisation levy revenue should be compared with the 15% global minimum tax.

Corporate Social Responsibility Expenditure – Section 37
36. 100% deduction should be allowed as expenditure as it is connected to social and charitable purposes.

Tax incentive for Electric Vehicles – Section 80 EEB
37. This section be amended so as to incorporate the condition of not owning any other electric vehicle at the time of sanction of loan.

Exemption on Skill Development under Section 11
38. To encourage institutes to undertake skill development programme, this activity should be included under section 11 as a charitable activity.
 
Minimum Alternate Tax (MAT) on SEZs
39. In order to boost exports and make India an export hub, Govt should make the existing and new SEZs exempt from MAT.

40. Benefit of the Remissions of Duties and Taxes on Exported Products (RODTEP) scheme should be extended to SEZ and AA licence.

Investment allowance for Additional CAPEX
41. In order to foster Atmanirbhar Bharat, reintroduce the additional deduction for the companies who make investment in the capex. This will enable companies to come forward with their investment.

Boosting R&D Expenditure – Section 35
42. Restore the 150% Research & Development spends benefit under section 35 of the Income Tax Act to promote R&D in the country.

Personal Income Tax



43. Under the new scheme of less exemptions annual income of over Rs 15 Lac attracts 30% tax. If annual income is above Rs 50 Lac, there are surcharges and effective tax rate goes upto 37%. The maximum personal income tax rate should be around 25% to increase the personal disposable income and stimulate demand.

INDIRECT TAXES

GST – Inverted Duty Structure
44. No refund of tax credit can be claimed for input services under the GST regimes inverted duty structure. It refers to tax on inputs being higher than the duty on finished product. This anomaly under section 54 (3) of GST needs to be addressed.

GST – Rationalisation of Tax rates
45. There are 8 effective GST rates. It has been suggested that a structure of 8%, 15% and 30% rate for sin goods as a part of rationalisation. This will minimize the costs associated with tax compliance, administration and economic distortions.
 
46. Govt should take a fresh look at the high fuel taxes and weigh the cost v/s the benefits of reducing taxes on petrol and diesel. Lower oil prices may be beneficial in boosting customer confidence, reduce transportation cost and thus reduce inflation pressure.

47. All previous assessments of VAT should be closed suo moto or, if complete closure is not possible then the assessment should be completed in a timely manner.

Customs Duty
48. Consider temporary upward revision of Import duties to promote indigenous production of consumer goods especially on goods imported from China and also extend the PLI scheme on such goods. Put WTO compliant non tariff barriers to discourage avoidable imports.

49. Customs duty on import of power equipment for captive power plants should be reduced to nil from the current 5%.


CONCLUSION


50. Indian economy is poised to grow at a double digit rate during the current financial year and projected as an expansion by 6.5-7% during 2022-23. As per IMF, global economy will grow 5.9% this year and 4.9% next year. Need to continue with fiscal stimulus and accommodative monetary policy stance till the economy is out of the woods.

51. Aim should be to get back to higher growth trajectory of over 8% with greater job creation. For this government must create demand and revive private investment by spending and other policy and regulatory measures. A higher fiscal deficit should not be a concern till domestic capacity utilisation starts rising well above the 70% where it has been for some years.

52. India is confident of defeating any impending waves of Covid -19. Amid adversities, India inc. has shown how right Albert Einstein was when he said “Amidst every crisis, lies great opportunity”.