Dec 23, 2016

Ahead of Budget 2017, Arun Jaitley hints Indian Railways fares will be freed

As the Indian Railways is saddled with under-recovery of over R32,000 crore from the passenger segment, an across-the-board hike in fares could be expected soon.
Though the transporter manages to fend for itself, its mammoth, legitimate capex needs are a nagging burden on the exchequer and so commuters will have to pay up, finance minister Arun Jaitley indicated on Tuesday. (PTI)
As the Indian Railways is saddled with under-recovery of over R32,000 crore from the passenger segment, an across-the-board hike in fares could be expected soon. Though the transporter manages to fend for itself, its mammoth, legitimate capex needs are a nagging burden on the exchequer and so commuters will have to pay up, finance minister Arun Jaitley indicated on Tuesday. Slated to present the first combined general and railway budget on February 1, the minister also made a case for the railways outsourcing non-core functions like hospitality services.

Speaking at a conference on Accounting Reforms in Railways organised by the Confederation of Indian Industry (CII) here, Jaitley said, “Railways got caught in a battle where populism prevailed over performance.. For any commercial establishment to be run, the first essential principle is that consumers must pay for the services that they receive.”

Sources said that while the Budget itself could see significant increases in passenger fares — the surge pricing scheme launched in September had already upped the cost to passengers — the proposed Railway Development Authority, with the mandate to recommend market-linked tariffs, could be set up immediately after the Budget.

Revenue from the passenger segment is estimated to be R52,000 crore for the current fiscal, up 12% from last fiscal. Revenue from the passenger segment is just over a quarter of the railways’ gross traffic receipts, as the bulk of its revenue comes from freight, with coal, foodgrains, iron ore and cement being the virtual milch cows for it.

“The core competence of the railways is really to drive trains, to provide those services. Hospitality may not be the core competence of the railways and, therefore, what is not within its core competence, the principle of outsourcing — which is accepted world over — can be a logical addition to those activities of railways,” Jaitley said. Citing the example of the power and highway sectors that started doing well only after consumers paid for the services they got, Jaitley said the world over, only those services have succeeded where there is a financial model which says that consumers pay for what they receive.

Separately, speaking to a group of journalists, the minister defended the latest curbs on deposits in scrapped bank notes — deposits of over R5,000 are now to be allowed only once until December 30 with stiff conditions — saying repeat deposits by the same people raised doubts about the source of money. “Now there is no further scope of earning old currency so those who have got old currency must go and deposit in one go,” Jaitley said, responding to criticism the latest Reserve Bank of India directive amounted to a breach of trust as the window for depositing the old notes is open till December 30 and government had earlier advised people not to rush to make the deposits. “If somebody goes every day and deposits old currency, it raises suspicion. How is he getting (cash) every day? As long as exemptions existed, there was scope for getting old currency, but once the exemptions have been lifted, if you have old currency, go and deposit in one go.”

With post-November 8 deposits in banks reported to be around R14 lakh crore, or over 90% of the value of the junked notes (R15.5 lakh crore) that were in circulation when demonetisation was announced, the RBI on Monday mandated that such deposits can now be only once per account till December 30; that too after explaining to bank officials the reasons for not having deposited so far. However, Jaitley late on Monday night clarified that no question would be asked on single deposits of any amount until month-end while repeated deposits could invite queries.

With speculation doing the rounds about the amount of new notes circulated by the RBI, Jaitley said the central bank has enough currency in its chests to last far beyond December 30. Economic affairs secretary Shaktikanta Das had recently said that about 50% of the scrapped notes would be replaced with new notes by December 30. Before the announcement of demonetisation, the government had already arranged for the printing of 200 crore discrete R2,000 notes, or roughly about R4 lakh crore in value, sources said.

With the government unlikely to replace fully the scrapped notes, it has of late taken several steps to promote digital transactions. On Monday. it announced a new tax incentive for unincorporated small traders and businesses — other than transportation, agency, brokerage and commission entities — to shift away from use of cash: So long as their annual turnover is not above R2 crore, their profit from gross receipts received via banking channels or digitally will now be reckoned at 6% for taxation purpose, against 8% earlier. The incentive, as of now, is only for the financial year 2016-17. However, the existing rate of deemed profit of 8% under section 44AD of the Income Tax Act will continue to apply in respect of gross receipts received in cash. “It is a tax incentive to support digitisation of the economy. And if we calculate it, then some traders would get over 30% tax advantage if he transacts through digital mode,” Jaitley said.

Separately, Axis Bank has assured the government that it is taking action against erring officials who were involved in irregularities post-demonetisation. Several officials of different banks including that of Axis Bank have been caught by investigative agencies for their involvement in irregularities. The Enforcement Directorate (ED) arrested two Axis Bank managers here and seized 3 kg gold bars in connection with its money-laundering probe in a racket of illegally converting old notes in connivance with banking authorities.
Source - Financial Express