Economic Highlights

New Delhi, 9 December 2024

Rail Not in Loss, Users Fund

HI FARE THE EXTORTION NORM

By Shivaji Sarkar

Some debate or discussions never end. Sois the rail subsidies, that rail knows has never been offered. But now someone in Parliament surprisingly says that railways subsidises 46 percent rail fares of all classes. He has not given any details. He wants that since he has the courage to say in Lok Sabha it should be accepted as Gospel truth. Indian media has in reality done it and have been giving wide publicity to it without scrutiny.

Not surprised. Quite some time back did a study and found media does not act on its own. All uses media as a “tool”. The media does echo whatever one has said. That is also called propaganda. It has become easy and scrutiny not easy as all documents are kept concealed from the access of the common user got a decade. Even parliamentarians like BasudevAcharia (CPI-M), who knew the rail like his palm or Aravinda Ghosh, the journalist were never charitable as they had the facts.

None has challenged the fallacious statement and the person has got uninterrupted publicity. Some connoisseurs on the social sites have, however, stated that never since the inception rail has given a paisa as subsidy. Railways subsists itself and it does not get a paisa from the government. There is no scope for a subsidy. 

Why should one make such an unsubstantiated statement on the floor of the house? At least the person could have seen various details present on various books, files and sites. This is not the first time that such claim is made. In 2019 too it was said that Rs 35000 were rail subsidies. It was later refuted.

Presenting the 2019-20 Interim Budget, Piyush Goyal said that capital expenditure is pegged at Rs 64,587 core, a mere rise of Rs 15,687 crore over Suresh Prabhu’s figures. It means even after the merger of the Rail Budget with the Union Budget, the Railways is paying for all of it, which only means that the Centre does not have to bear the cost of investment in railways. The subsidy is a myth.

Why are the people being implored to give up and for whom? The railways misstatement also has a cost.This calls for transparency and a national debate. The CAG noted that about Rs 14,000 crore surplus known in the 2018-19 budget is incorrect.

The Railways has a system of cross-subsidy. Often it is said that passenger earnings are not enough, so freight earnings are used to subsidise it. This is happening since 1950s and even during the days of private East India Railway or Bengal-Nagpur railway or even some of the princely sae narrow gauge trains. Even Suresh Prabhu’s budget or Piyush Goyal’s or Nitish Kumar or Mamata Banerjee in the yore or Ashwani Vaishnav, who was with the Siemens selling rail engines and other equipment is based on this premise.

This again proves that except for the bureaucratic jargon there is no loss, and if at all, it may be minimal. There is no loss on premium trains including that to Vaishno Devi or T-18 –Vande Bharat or the Rajdhanis.

And why 1300 stations being demolished and for whose benefit? Why is this extra expenditure?

No one stated about the extortion in the name of dynamic fare (DF)that has jacked up basic fares many times. The railways are silent on how much extra it earned for rendering no service by inflating fares and subsuming full fares on waitlisted tickets, causing inhuman troubles to the genuine passengers.

No NirmalaSitharaman or Vaishnav stated that in the budget. It gives astounding figures of fare collection, certainly due to DF.

Bereft of media attention or scrutiny, the regime could bask immediately in the glow of a “massive” increase in outlay without delivering anything substantial at all. This tested model was applied to the railway finances.

Railways gives Rs 56,993 crore subsidy on tickets every year, says Vishnaw and has record earnings of around Rs 2.56 lakh crore in 2023-24 from freight and passenger movement, which is its highest-ever revenue earnings. Its earnings totalled Rs 2.4 lakh crore in the previous year. And the Cnetre has given nothing. Vaishnav does not explain how the subsidy is calculated.

Today, Indian Railways carries 22.2 million passengers daily (almost equal to the population of Australia) in its 13,229 passenger trains across a network of 67,368 km through the length and breadth of the country. Additionally, another 9,221 freight trains carry more than three million tonnes of freight daily. The freight earns IR is currently one of the four railway systems in the world with an annual output of more than one billion tonnes of freight. With such a humongous transport output, the cost of its various services must be carefully calculated for the industry to maintain a robust financial health.

Undoubtedly, there is no subsidy at any level. But railways launched well-planned propaganda on its tickets and other instruments cajoling the people to give up “subsidy”, which is not there. It causes severe loss to senior citizens

In monetary terms neither the railways nor the government is having any loss but it is silent about the extra earnings from DF and harassment to the travellers. Why should not railway refund unconfirmed waitlisted ticket fare with a minimum interest rate?

According to Vaishnaw, the Railways have actually borrowed less than what was provisioned for. Borrowings to fund capex by public enterprises and SPVs (IEBR) was “just around” Rs 20,000 crore in FY24 (actuals); with total capex was Rs 2,60,000 crore. “In FY25, our borrowings are far less than FY24 actuals, and there is better Budgetary” support – the highest ever. For example, the Extra Budgetary Resource or borrowings have come down from Rs 41,000 crore in FY23 to Rs 17,000 crore in FY24. It will be brought down further to ₹10,000 crore this year. So this is a good sign,” he explained. He is shy of admitting that there is no subsidy by railways or the government.

Incidentally, the Indian Railway Finance Corporation (IRFC) will abstain from borrowings, for the second consecutive year in FY 2025.  In FY2024, the organisation did not raise funds, while in FY23 it raised over ₹30,000 crore, as per the Budget documents. Shows rail finances are in good health.

The detailed statements reveal the reality. The railway services are becoming deficient with higher DF but also higher actual savings. Let us admit, Indian Railways do not give a paisa as subsidy.---INFA

(Copyright, India News & Feature Alliance)

Economic Highlights

New Delhi, 2 December 2024

JICA Bumps ToBullet Train

LOW-FARE VANDE NEW ‘SHINKANSEN’

By Shivaji Sarkar

The ambitious Mumbai-Ahmedabad Bullet Train project, once a symbol of India’s leap into advanced infrastructure, is now mired in delays, cost overruns, and environmental controversies. Japan, a key investor through the Japan International Cooperation Agency (JICA), has grown wary of the project’s trajectory due to escalating costs and inadequate environmental safeguards.

Approved in December 2015, the ₹1.08 lakh crore high-speed rail project was initially aimed for a 2023 launch. However, land acquisition hurdles, especially in Maharashtra, and financial constraints have pushed deadlines repeatedly, with only a partial launch from Surat to Bilimora now targeted for 2026. The project’s cost has surged by ₹15,000 crore, a steep climb for an economy grappling with a seven-quarter GDP slowdown to 5.4 percent.

Despite Railways Minister AshwiniVaishnaw’s efforts, including a visit to Japan in September, progress remains sluggish. Japan’s reluctance to commit to revised timelines has prompted India to explore European alternatives for suppliers and technology. This shift, coupled with internal directives to float global tenders, underscores India’s urgency to salvage the project.

The project’s compliance with environmental and social norms remains under scrutiny. Environmentalists have criticised the absence of comprehensive environmental impact assessments and advisory committees mandated by JICA for “Category A” projects, which involve significant societal and ecological disruptions. Reports highlight violations, including inadequate public consultations and the bypassing of legal requirements for social and environmental evaluations.

Gujarat’s 2016 amendments to land acquisition laws and the Supreme Court’s relaxation of environmental clearance norms have further exacerbated concerns. Activists argue these changes undermine safeguards meant to protect displaced communities and fragile ecosystems.

The central government is keen to showcase progress before the Gujarat Assembly elections in 2027. However, delays in resolving critical issues threaten this timeline. Critics speculate that the project, if completed, might end up being a costlier version of the existing Vande Bharat trains rather than a transformative leap in Indian rail infrastructure.

While the Bullet Train remains a flagship vision, its current state reflects broader challenges in balancing infrastructure growth with environmental and financial sustainability.Studies have found that expensive trains have poor ridership. Vande Bharat and similar trains often go half empty. Comparable travel cost on bullet is estimated to be high and not remunerative for bullet train.The Railways are considering having indigenous coaches of Vande Bharat type to replace the Japanese high-tech Shinkansen coaches.

The bullet train is not the first example of a foreign-funded infrastructure project that has run afoul of international social and environmental standards. In Gujarat itself, the Tata Power-owned Mundra Ultra Mega Power Project in Kutch has been in the midst of such a controversy since 2011. The US-based International Finance Corporation funded the project with an aid of US dollars 450 million, but villagers living around the power plant have now sued the IFC for alleged large-scale environmental damages caused by the project. In 2015, a lower court in the United States held that international funding organisations are entitled to “absolute immunity” from lawsuits in that country. However, in May this year, the US Supreme Court agreed to take up an appeal case by the project-affected villagers.

With an annual outgoing EMI of ₹6,802 crore but a lower estimated revenue, the Mumbai-Ahmedabad bullet train project is set to become a big liability to the exchequer. The JICA loan is given in Japanese Yen (JPY) and has to be paid back in JPY. If the Yen appreciates the loan amount will increase significantly in rupees, if the rupee appreciates, the loan amount will decrease significantly. For example, if 12 years ago, Re 1 was 1.39 JPY and today it has depreciated to 1.86 JPY, now if it appreciates again and goes back to 1.4 JPY, then the loan amount simply goes up by Rs 52,571 crore. Even though it looks like a low-interest loan, currency fluctuation can change the whole game.

The analysis also factors in the total number of passengers which will travel along the entire Mumbai to Ahmedabad route, as well as Surat to Mumbai or Surat to Ahmedabad route, which could be double of 17,900 passengers, considering passengers travel to and fro. The proposed fare for one side travel was ₹3,000, which is 1.5 times the rate of a first class train ticket.

In a best-case scenario where all passengers are travelling from Mumbai to Ahmedabad and back, the bullet train will generate an annual revenue of ₹3,920 crore, but the yearly loan liability is Rs 6,802 crore, so there will be a shortfall of Rs 2,882 crore. Conservative estimates peg revenue at Rs 2,499 crore per year, revenue shortfall Rs 5,103 crore in the first year itself.

The estimated cost of operations was Rs 412 crore per year in 2014, but by 2028 it will become more than double, at over Rs 800 crore. It further goes on to say that Indian Railways with all 13000 passenger trains including First Class, 2AC, 3AC, Rajdhani, Shatabdi, and Vande Bharat could only earn Rs 63,300 crore in the last year. Delhi metro with a daily ridership of 46 lakh people clocked revenue of Rs 3,088 crore last year.

If we look at bookings of last summer, most cheaper trains are fully booked, and Vande Bharat and Tejas Express have lots of seats available. Already, 33 trains are running on the route. Moreover, a ticket price of ₹3,000 was determined when cost of construction was ₹1.1 lakh crore.

There are problems. The new plan is to produce coaches and have signalling systems of Indian railways instead of Shinkansen. There are still three years. There are international commitments to JICA and diplomatic issues with Japan. What are being discussed are partial truths. Theproject could get a bit more delayed, but the Indian Railways expects that most of the original plans would be on track with some modifications.The project may be completed beyond 2027 and may be on time for 2029 Lok Sabha elections. The operation cost is likely to go up and the railways have to reconfigure the fares to be charged to make it more affordable and sustainable. ---INFA

(Copyright, India News & Feature Alliance)

Economic Highlights

New Delhi, 26 November 2024

Restore MRTP-Type Safety

REGAIN TRUST TO GET FDI

By Shivaji Sarkar

As the Gautam Adani episode unfolds, it underscores the urgency of balancing corporate ambitions with public accountability. Failure to act, risks further eroding India’s global economic standing and investor confidence.There is an imminent need to ensure ethical corporate governance with due transparency and aligning with practices with global standards to restore trust. Also,Members of Parliament must prioritise corporate accountability to ensure economic growth.

Corporate bodies such as FICCI, Assocham and PHD Chamber of Commerce must ensure legislative reforms for revival of Monopolies and Restrictive Trade Practices (MRTP) type laws to reintroduce safeguards against monopolistic practices, as also ensure that Satyam like falsified accounts are not repeated.

Gautam Adani is no ordinary Indian billionaire. Over the past 10 years, in effect he has become an extension of India’s government. His conglomerate, Adani Group, builds and buys ports, factories and power plants, often under state contract or license.Adani’s business empire has become central to India since 2014 during the rise of Narendra Modi, first elected as prime minister. In ten years, the international press estimates the group is worth ten times what it was at the start of the Covid 19 pandemic.

This November 21, the US government charged Adani with “multiple counts of fraud”. The US Federal prosecutors accused him and his associates of offering $265 million to Indian officials and lying about the bribery scheme to the Wall Street investors when raising money for a massive renewable energy project, a criminal offence as per the US law.

These incidents have broader implications for India’s trade and investment relations, particularly in emerging markets such as Africa and Southeast Asia. Indian companies may face increased scrutiny, stricter compliance requirements, and reduced trust from international partners. This erosion of confidence could lead to a decline in foreign direct investment (FDI), a key driver of India’s economic growth.

Perhaps the Adani group had not committed any offence under the Indian law. It repeatedly stood up against Hindenburg allegations of short-selling, manipulations in the stock market and sustained through submission of affidavits with the courts of law, Security Exchange Board of India (SEBI) and other agencies.The SEBI chief Madhavi Buch with her husband’s controversial investments in the group entities also gave queer rulings. In 2023, Parliament sessions were washed away for these reasons.

The nation has lost substantially with a thawed stock market since January end. The combined market capitalisation of all 11 Adani Group companies fell by Rs 38,000 crore to Rs 11.68 lakh crore following the latest US indictment news. The rating agency S&P Global on Friday, November 22 revised its outlook on the three group entities to ‘negative’.But that was not the end. Kenya surviving a political turmoil, scrapped $2.6 billion deals with the company. It found the terms too unrealistic, a recall of the Bangladesh situation. Even investments in Sri Lanka are being questioned.

The BSE investors lost over Rs 13 lakh crore in the second week of November alone. It would not be easy to calculate the losses due the bloodbath since January. The haircut is too heavy.It impacts credibility of the Indian corporates. It’s not a legalese. It hurts most companies. Their capability of raising funds internationally is severely compromised. It’s almost a repeat of the Satyam accounting misadventure with the involvement of an international auditing firm. PricewaterhouseCoopers (PwC) affiliates were the auditors of Satyam Computer Services (Satyam) when the company’s accounting fraud was discovered in 2009.

India’s Adani moment was destined around 2000, when one day suddenly Pramod Mahajan, then Parliamentary Affairs Minister, with keen interest in corporate affairs told a select group of journalists, “the MRTPC (Monopolies and Restrictive Trade Practices Commission), is hindrance in corporate growth. We would do away with it.”It was a notable moment.

The country’s first Prime Minister, Pt Jawaharlal Nehru had never allowed ingress of the Bombay Club, a nomenclature of the Indian corporate given to itself. Despite this club, the Nehru government was able to stand for an anti-monopolistic legal structure as it was concerned about corporate misgovernance and made ways to impose conditions to keep them in check. Under his daughter, Indira Gandhi as prime minister,the government enacted MRTP Act in 1969 and the regulator MRTPC to prevent bypassing the law to prevent the concentration of economic power and check monopolies.

By 1991, the PV Narasimha Rao government diluted it to suit the corporate demand followed by the Harshad Mehta stock scam in March 1992, post Union Budget.In 2002, the Atal Behari Vajpayee government enacted the Competition Act to replace the MRTP Act. The rest was done by the UPA-I government of Manmohan Singh on 1 September 2009 to formally scrap the MRTP Act that the Indian corporate believed “saved” them from predatory moves as also checks and balances for the corporate to behave ethically, a provision that the Bombay Club detested.

In fact, it was not the Atal Behari Vajpayee government that made the move to delete it from the statute book. The PV Narsimha Rao government with its finance minister Manmohan Singh amended the MRTP Act in 1991itself after the introduction of the “New Economic” liberalisation policy. The amendments removed pre-entry restrictions on mergers and acquisitions. The rest was done by the UPA-I government.

The 2023-2024 Adani moments could be compared only with the Rs 7800 crore Satyam scam, a corporate fraud that took place in 2009, and was considered India’s largest business scandal at the time. The scam involved Ramalinga Raju, the founder and chairman of Satyam Computer Services. An anonymous whistleblower sent emails to a company director, Krishna Palepu, using alias Joseph Abraham. The whistleblower also alerted the SEBI and the media about the scam.

The years 2012 to 2014 were marked by many corporate frauds. Parliamentarians, who once were too vocal about such issues, surprisingly are silent now. Only one MP has raised the issue of gifts to Parliamentary Standing Committee of railway members. It involves a gold coin from the Rail India Technical and Economic Service (RITES).

Members of Parliament irrespective of party affiliation should take up such blatant corporate defiance, not to tame them, but to ensure the corporate entity remains safe and adds to the growth and benevolence. The return of the MRTP-type law must be a sine qua non.The country has done a great disservice since 1991, of undoing the moment that “legalised” the doors to what the corporate is brazenly bulldozing now. Would Parliament stand up to save the country or kow-tow the biz that has taken the credibility to its nadir?---INFA

(Copyright, India News & Feature Alliance)

Economic Highlights

New Delhi, 4 November 2024

Global Gold Rush

CENTRAL BANKS SPIKE PRICES

By Shivaji Sarkar

In a striking move to safeguard national wealth, India has repatriated 214 tonnes of gold from the vaults of England, a sign of heightened concern over escalating geopolitical tensions and looming sanctions. This shift reflects a broader trend, with central banks globally ramping up their gold purchases.

In May alone, India recalled 100 tonnes from the Bank of England, reinforcing a strategy to shield assets amid global uncertainty. Now, as global gold prices soar toward a potential $3,000 per ounce, the world is watching closely, with India emerging as a key player in the race to secure precious metals in these volatile times.

The Government of India has decided to prioritise protecting its assets in the face of global geopolitical unrest. About 100 tonnes were returned from the Bank of England in May. A total of 324.01 metric tonnes of gold were held in the custody of the Bank for International Settlements (BIS) and the Bank of England, while 510.46 metric tonnes were retained domestically. Additionally, 20.26 metric tonnes of gold were stored as deposits. In the world market, gold is projected to rise to $3000 per ounce, according to Goldman Sachs.

The Diwali 2024 market sparkle appears subdued for a number of reasons despite cracker sales going back almost to the fuzzy pre-ban eras of the National Green Tribunal. The traditional gold sales could not touch previous years high as the metal was priced around Rs 78,430, almost 30 percent higher than last year. “Silver sales rose 33 percent, while gold volume fell by 15%,” according to the Indian Bullion and Jewellers Association. The market is stated to be as dizzy as it was in 2015 or 2019, the years marked by slowdown.

In its report titled “43rd Half Yearly Report on Management of Foreign Exchange Reserves: April - September 2024,” the Reserve Bank of India stated that it had a total of 854.73 metric tonnes of gold in both domestic and foreign repository facilities. The RBI has been buying gold to diversify its forex reserves and hedge against external risks. In 2024, the RBI has added 54.7 tonnes of gold to its reserves, the highest acquisition in three years.

After the Ukraine war, $300 billion worth Russian currency and other assets, kept as reserve in US dollars, Euro and sterling pound, were seized by the US and the G7 countries. The assets are being used to bolster funding arms and other supplies to Ukraine.

India has since acted cautiously even in deals with purchase of Russian crude. The recent spat with Canada and US-Israel escalation of war to Lebanon and Iran has added to the caution. This forced repatriation of gold by RBI, which has been purchasing gold and has been stocking abroad for payments in terms of gold instead of the dollar. The RBI saves huge amounts in terms of vault rents as well.

Robust demand in the world’s second-biggest gold consumer could further push up global prices, which hit record highs last week. Rising demand for imports of gold could also widen India’s trade deficit and put pressure on the rupee. Yes, India’s gold purchases have contributed to rising global gold prices.

This apart, India’s gold demand in 2024 is likely to fall to its lowest in four years as a rally in prices to a record high is seen denting purchases during the peak festival season, the World Gold Council (WGC) said on Wednesday.Gold demand in the world’s second-biggest consumer of the precious metal could stand around 700 and 750 metric tonnes in 2024, the lowest since 2020 and down from last year’s 761 tonnes, according to Sachin Jain, CEO of WGC’s Indian operations. This Dhanteras, gold sales dipped in India to 35 tonnes, down from last year’s 42 tonnes.

Gold has risen to multiple all-time highs this year. Sizable central bank purchases of gold bars have reset the relationship between rate and price levels since 2022. Goldman Sachs Research estimates that 100 tonnes of physical demand lifts gold prices by at least 2.4 percent.Credit card usage also hit new highs, with card spending reaching Rs 80,000 crore in September, 57 percent increase from last year.

The retail mom and pop shops have problems as the footfall was subdued due to many turning to online shopping. Both Amazon and Flipkart reported a strong Diwali season, with Flipkart leading with a 64 percent market share during the initial October sales. Sales from online platforms saw year-on-year growth of 23 percent, with goods worth Rs 32,000 crore sold.

More are BNPL, or Buy Now Pay Later customers, or paying on instalment helped by credit cards, indicating cash shortage with the people. This trend was especially pronounced among new shoppers from tier 2 and tier 3 cities.

The car sales have suffered during the most part of the year before just marginally picking up during the Dussehra and Diwali festive seasons. Maruti profits lowered to Rs 3102 crore in September, by 18 percent, as against Rs 3762 crore a year ago. Maruti CEO RC Bhargava says “affordability is a concern”. The demand for cars below Rs 10 lakh is in demand. Small cars inventory levels hit a “historic high” of 80-85 days, leaving dealers with a stock of 790,000 vehicles worth Rs 800 billion rupees, the Federation of Automobile Dealers Associations say.

Despite high inflation, Indian consumers opened their wallets wide this Diwali season, pushing festival-related spending to about Rs 1.25 lakh crore, claimed Confederation of All India Traders (CAIT)General Secretary Pravin Khandelwal. Delhi alone saw spending of Rs 25,000 crore, including FMCG goods, consumer durables and home décor earthen lamps and electronic goods, traditional and modern products, he says.

Mobile phones in the below Rs 20,000 range had brisk sales. Mobile phones were among the hottest sellers this season, with a 12-15 percent rise in the average selling price, driven partly by a shortage in device availability. This scarcity led to consumers grabbing whatever stock was available, resulting in an increase in the average price of phones sold.

In sum, the rising gold and commodity prices, fall in rupee value, crunch in income and manufacturing are concerns amid a global unstable war like situation.---INFA

(Copyright, India News & Feature Alliance)