Two per cent cut across all classes of railway travel costing Rs 50 or more and Re 1 cut in tickets below Rs 50 was the only major announcement coming from Railway minister Lalu Prasad’s last budget in this government’s tenure. A lower surplus figure of Rs 18,847 crore expected in 2009-10 compared to revised estimates of Rs 19,320 crore this year was another highlight of Friday’s railway budget.

On the impact of fare cuts on railway coffers, member (traffic) Shri Prakash said it would be about Rs 700 crore. However, the shortfall would be made up by increase in passenger bookings.

On the cost side, Railway Board chairman SS Khurana said the financial impact of the Pay Commission recommendations has been assessed at Rs 13,500 crore in 2008-09 and Rs 14,500 crore in 2009-10. However, he said, "The Railways would absorb the impact of the recommendations due to the excellent performance of in the last few years and build-up of robust fund balance.

The operating ratio that shows how much has been spent to earn Rs 100 will increase as a fall-out of the implementation of the pay commission recommendation to 89.9 per cent in 2009-10 from 88.3 per cent in 2008-09.

Khurana expressed the hope that revival in transportation of minerals in 2009 would help the Railways achieve the target of loading 850 million tonne this fiscal. The chairman said total earnings for 2009-10 has been pegged at Rs 93,059 crore. The earnings from passenger category has been projected at Rs 25,000 crore and from goods at Rs 59,059 crore.

The Railways plan to invest next year about Rs 1,132 crore more over Rs 36,773 crore estimated to be spent in projects during 2008-09. The additional money into the railway plan expenditure is expected to have a counter-cyclic impact on the slowing economy. The stimulus could also have come through freight rate reduction but that did not happen.

The increase in investment will be in a year when its profit (surplus) is expected to fall to Rs 5,572 crore from Rs 6,355 crore estimated for the year ending March 2009 and when freight loading will grow just 7 per cent. It may mean lower returns on its investment.

The railway investment outlay has been stepped up to Rs 37,905 crore in 2008-09. Compared to a plan size of just Rs 13,394 crore in the first year of Tenth Plan of 2003-04, the jump is substantial. “The Railways have deployed their investible surplus of nearly Rs 70,000 crore earned between 2004-05 to 2008-09 to increase its productivity. The Railways will invest Rs 2,30,000 crore under the 11th Five Year Plan,” said railway minister Lalu Prasad in his budget speech.

The downturn is likely to continue into the next financial year and an increased railway spending will create a ripple effect since more contracts would be awarded. Planned expenditure constitutes investment in projects. "In our assessment, India's period of downturn is expected to last between the second half of 2008-09 and first half of 2009-10," secretary economic affairs Ashok Chawla had told reporters after the release of GDP figures on Monday.

The Rs 1,132-crore increase in investment translates to about 1 per cent of its total income of Rs 95,306 crore, said Vishwas Udgirkar, executive director, PricewaterhouseCoopers. He considered it too little for the size of railways and said more could have been allotted while agreeing that such investment in general helps in stimulating economy.

The government announced two stimulus packages in December and January whose impact is expected to be felt in the couple of months. Together with the increased infrastructure spending, companies like Larsen & Toubro, GMR, Reliance Infrastructure, Bombardier, BHEL, SAIL and Tata Steel are expected to benefit from it.

Lalu Prasad in his speech said the objective was to increase the transport capacity of the Railways and to reduce the unit cost of operations though he did not spend much time in giving out details of the big projects announced in the past like the freight corridors. “He should have detailed out progress for the big ticket projects,” said Udgirkar.

According to him, the budget was disappointing for the industry since they were expecting a freight rate cut and the stimulus could also have come through it but he said on the whole it was “good” since he has shown a surplus despite the slowdown and restrained from announcing big announcements and left it to the new minister.