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Topic:-"Budget and its impact on
Transportation sector."
DEPARTMENT OF MANAGEMENT
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II LOVELYPROFESSIONALUNIVERSITY
F PHAG WAR .
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(2010)
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Contents
INDUSTRY OVERVIEW
Infrastructure Development
Aviation
Railways
Roads
IMPACT
Railways
Shipping:
Aviation:
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INDUSTRY OVERVIEW
In India, the share of the transport sector in GDP (gross domestic product) in 1997/98
was 7.3% (1993/94 prices). Road transport and the railways account for the majority
of this contribution. Since the early 1990s, India's growing economy has witnessed a
rise in demand for transport infrastructure and services by around 10 percent a year.
Civil Aviation in India is big business and it has undergone dramatic expansion during
the decade. This fact is reiterated by the presence of numerous airlines and their
expending fleet size. There are 11 scheduled passenger operators and one cargo
operator in the country with a combined fleet size of 407 aircraft. There are also 99
non-scheduled airline operators who have 241 aircraft in their inventory. The sector
showed signs of slowdown due fluctuations in the cost of air turbine fuel (ATF) and
the global economic slowdown. To add to the woes of the aviation sector, the national
carrier is in financial doldrums and looking forward to a bail-out from the
Government.
The performance of the railways has improved during the recent years on account of
better resource management through increased wagon load, faster turnaround time and
a more rational pricing policy. But there are further efforts to be made in this sphere.
The route length has grown from 62,367 km in 1990 to only about 63,350 km now. A
comparison of these statistics with China (network currently stands at 80,750 km, with
goal to add 6,000 km of new tracks every year till 2020), shows the distance yet to be
travelled by Indian Railways
Roads all over India have to be developed to facilitate better road transportation and
brought at par with international standards. The National Highway Development
Programme (NHDP) is a major thrust in this direction. The implementation of NHDP
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though has been faced with a number of constraints that include delays in land
acquisition and removal of structures, shifting of utilities, law and order problem in
some states and poor performance of some contractors. The infrastructure
development in the road sector also suffered largely when out of the 60 projects for
which tenders were floated during 2008, only 10 attracted bids.
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augmenting adequate capacity and modern handling facilities at ports, but operational
efficiency of these ports has a long way to go. The average turnaround time is 3.85 days
during 2008-09, compared with 10 hours in Hong Kong, undermines the competitiveness of
Indian ports.
The financing of infrastructure development has suffered due to the economic downturn. The
flow of resources to infrastructure through external commercial borrowings (ECBs) had
quadrupled from 2005-06 to 2007-08, but then came down drastically during 2008-09
(refervtable). The air transport sector witnessed slowdown in ECB flows during 2008-09. The
funds raised through public and rights issues by infrastructure sectors have shown a steep
decline. Another major issue is the inadequate availability of long-term finance (10 year plus
tenure) both equity and debt for PPP projects. Private sector will play a larger role through
PPPs in infrastructure, but bulk of the investments has to come from the government.
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The budgetary allocation for infrastructure ministries such as civil aviation, telecom,
shipping, road transport, railways and related areas like drinking water and urban
development has been increased to Rs 61,099 crore; up from Rs 48,866 crore in the previous
year. Apart from direct spending, infrastructure will also get a boost through some of the
indirect measures announced in the Budget. To this end the following measures in this regard
were announced in the Budget:
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i . Infrastructure Development
The India Infrastructure Finance Company Limited (IIFCL) was earlier set-up as a special
purpose vehicle for providing long term financial assistance to infrastructure projects. The
budget intends to provide greater flexibility to IIFCL to aggressively fulfil its mandate. IIFCL
will develop, in consultation with banks, a "takeout financing" scheme to facilitate
incremental lending to the infrastructure sector. Takeout financing is an accepted
international practice of releasing long term funds for financing infrastructure projects. It
consists of a few banks joining hands as a consortium and taking over the loan portfolio in
turns. It can be used to effectively address the asset liability mismatch of commercial banks
arising out of financing infrastructure projects and also to free up capital for financing new
projects. IIFCL will refinance 60% of commercial bank loans for Public Private Partnership
(PPP) projects in critical sectors over the next fifteen to eighteen months and along with
banks support infrastructure projects involving a total investment of Rs. 1000 billion.
2. Aviation
The budgetary allocation to the Ministry of Civil Aviation for the 2009-10 is Rs. 887 crore.
The growth in budgetary allocation for the ministry is down to just 3.6% in 2009-10 from
nearly 20% in the earlier year. The Government has made no allocation for any budgetary
support for NACIL. The breakup of the numbers for 2009-10 shows that bulk of the
allocation (Rs 620 crore of the Rs 887 crore) is towards subsidy for operations of Haj
charters. The budget focuses on airport infrastructure development. The budgetary allocations
to the aviation sector include:
The Government has increased the target of internal and extra budgetary resources (IEBR -
money from loans or through reinvestment of profits) which will be raised by PSUs under the
Ministry of Civil Aviation by over 63.5%, from Rs 7,320 crore in the revised estimates of
2008-09 to Rs 11,975 crore in 2009-10. The money will be used mostly to fund the aircraft
acquisition programme of the NACIL and also AAl for expansion of airports in Kolkata and
Chennai, among others. In the Budget documents, the IEBR target sanctioned for NACIL has
been doubled from Rs 4,136.9 crore in 2008-09 to Rs 8,165.6 crore in 2009-10. The IEBR for
Airports Authority of India has been increased substantially from Rs 2,567.2 crore in 2008-09
to Rs 3,145.8 crore in 2009-10.
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3. Railways
The Railway Budget for 2009-10 has been on expected lines. There is no increase in fares
and freight. The passenger segment has been given importance with a slew of measures to
please the common man. These range from monetary concessions to better travel facilities
with respect to ticketing, food and environment. The second most important infrastructure
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ministry in terms of Budget allocation was the rail ministry. The budget allocation for
Railways increased from Rs.10,800 crore in Interim B.E. 2009-10 to Rs.15,800 crore in B.E.
2009-10.
The rail budget highlights the following points:-
Plans to acquire 18,000 wagons under the rolling stock programme as against 11,000
wagons in 2008-09. The ministry also plans to add 4590 coaches and 500
locomotives.
Rs. 1,102 crore allocated towards improving passenger amenities
New policy to allow construction of private freight terminals and logistics parks
Tatkal scheme to be made passenger friendly.
Railway tickets to be made available through post offices and ,,mushkil aasaan
mobile vans.
Concession for press persons increased to 50%.
Monthly ticket of rs. 25/- for unorganized sector/poor under ,,izzat scheme
"only ladies
Plans for 3500 kilometers of track renewal; 1000 route kilometres of electrification;
1300 route kilometres of gauge conversion.
Plans for 250 kms of new lines to be added; 700 kms doubling of lines targeted.
World class stations to be developed on publicprivate partnership model
Proposed setting up of a new factory at Kanchrapara- Halisahar Railway complex in
West Bengal with annual production capacity of 500 coaches. This unit will be set up
in Joint Venture /Public Private Partnership mode.
,,Yuva trains fromruralhinterland to metros at concessional fare
12 new point-to-point ,,duranto trains
57 new trains, extension of 27 trains and increase in frequency of 13 trains and air-
conditioned double-decker trains proposed.
5. Roads
The budgetary allocation for the Ministry of Road Transport and Highways has been p
increased from Rs. 18,217 crore in 2008-09 (revised) to Rs. 21,635 crore in 2009-10. The
overall allocation for National Highway Authority of India (NHAI) has been increased from
Rs 11,051 crore in the previous year to Rs 13,646 crore in the current year. The IEBR target
for NHAI has been increased by 35% in 2009-10 as compared to the previous year.
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The allocation during the current year to National Highways Authority of India (NHAI) for
the National Highways Development Programme (NHDP) has being stepped up by 23% over
the 2008-09 (BE). This will provide the necessary impetus to the road sector. The highest
budget allocation in the infrastructure sector was for ministry of road transport which got
about a third of the Budget allocated for the main infrastructure ministries. The budget
highlights the following provisions for the road sector:-
NHAI can use increased allocation to provide VGF to the private developers
Allocations under Pradhan Mantri Gram Sadak Yojana (PMGSY) increased by 59%
over B.E. 2008-09 to Rs.12,000 crore in B.E. 2009-10.
NHAI will also be provided Rs 8,578 crore from the Central Road Fund.
In addition, the Govt has also provided for a grant of Rs 1,988 crore to the states. This
will be funded from the Central Road Fund. i,
Rs. 1,062.50 crore have been allocated towards maintenance of national highways.
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Rs. 4,140.55 crore allocated towards development of national highways, expressways,
special programme on development of road connectivity in naxal affected area.
Rs 3,484 crore towards grant assistance to States for construction of certain strategic
roads in the border areas being executed by the Border Roads
Development Board (BRDB) and stretches of national highways entrusted to the
BRDB.
Projects for the benefits of the North Eastern areas -Rs 1,511 crore
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IMPACT
Since 2001-02, transportation funds have been used to help balance the state s budget.
Because the decisions to do so are made annually, depending upon the statefl s overall
budget requirements, it is difficult to predict from year to year (1) how much transportation
money will be redirected to help the General Fund and (2) the funding source from which the
money would be redirected. As a result, it is not possible to determine which programs and
projects would be affected until after budgetary decisions are made. The resulting instability .
and unpredictability of funding delays project progress, complicates efforts to plan for future
projects, and creates inefficiencies in the department.
Transportation Loans Increase Instability and Will Delay Projects. In the current year, $231
million was loaned from SHA and other accounts to help balance the state s budget.
These funds are required to be repaid by June 30, 2011. This means that some projects that
rely on SHA money, mainly highway repair projects, will not progress in 2008-09 as
originally scheduled in the SHOPP. Instead, these projects will be pushed out to later years.
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A positive move is that the dedicated freight corridor on the Ludhiana Kolkata route would
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be inaugurated. Also, work on the Delhi Mumbai stretch has started. This will smoothen
the freight traffic movement and reduce the congestion of the operative lines and also bring in
time efficiency in the freight business.
The rail freight sector is expected to get a boost, with the railways deciding to introduce new
high-capacity wagons. This will help augment the business of the customers since they will
be able to transport more than what they did earlier.
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Speaking on the impact on the Road Freight sector there may not be any immediate impact,
however, the end customer will benefit with better coordination between the Rail-Road
freight sectors. This way the Rail & Road collectively can enhance productivity and
efficiency of the Indian Logistics sector.
The govt. is planning to increase the investment in infrastructure to more than 9% of GDP by
2014. Funding to railways has been increased to 15800 crores and that to National Highways
Authority of India (NHAI) for the National Highways Development Programme (NHDP) is
being stepped up by 23 per cent over the 2008-09 (BE).
A much needed thrust given to the infrastructure sector definitely speaks about the
govt. s intent to expedite the ,,inclusive growth process taking both the urban and
rural India under its umbrella. But mere announcement of multiple projects does not suffice;
their implementation has been a chronic problem for India. However the finance minister has
urged his colleagues in the central and state governments to "remove policy,
regulatory and institutional bottlenecks for speedy implementation of infrastructure
projects." The steps announced should help the real estate sector recover which was hit
hard during the downturn in the past fiscal year. The exemptions on goods manufactured on
site will give a further push to the construction industry.
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Ports 100% Automatic Applies to construction and
maintenance of ports.
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Annual budgetary allocation on transport:
Trends in Rail-Road Modes in Freight & Passenger Traffic
Year Goods(Billion Tonne KM) Passenger(BiI ion Passenger
M)
Road Railways** Road Railways**
1950-51 6.0 13.8 37.6 86.2 23.0 15.4 66.5 84.6
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1970-71
A
118.1(36.0)
¡ I-¡ I ¡.. .¡
2000-01 494(61.3)
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312.4(38.7)
. ¡ S
2075.5(82.0)
A
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457.0(18.0)
2010-2011 756 482 4189 564
Roadways:
The elasticity of tonne kilometres by road transport with respect to GDP is found to
be a little above unity (1.1). Using an elasticity of 1.1 of BTKM (Billion
Tonne Kilometres) with respect to GDP, four alternative scenarios for BTKM over the '
Eleventh Five Year Plan have been projected, for alternative GDP growth rates of 7,
8, 8.5 and 9 per cent as given in the Approach Paper to Eleventh Plan. The
projected BTKM made by the Sub Group for alternative growth scenario may be
seen in table below
Eleventh Five Year Plan Prolections for Freiqht (2007-08 to 2011-1 2)
i Projections
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The Committee on Infrastructure headed by the Hon'ble Prime Minister has proposed a
massive National Highways Development Programme from (2007-2012) which envisages
the following:
All the above mentioned projects will be financed through various sources of funds
like cess, loan assistance from the World Bank and ADB, borrowings by NHAI, estimated
surplus amount available from the users fee as well as the share of private sectoi&jp
Various sources of funding to finance these projects have been finalised and the financing
plan implementation by the year 2015 by has been approved. The requirement of funds
during the 11th Plan (2007-20 12) for implementation of NHDP has been worked out. The
total amount required during this period is about Rs. 1,73,501 crore. The projected
availability of fund from various sources during eleventh Plan period ( 2007-20 12) are as
below:
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Development of the National Highways with the Border Roads Organizations (BRO)
The total length of National Highways entrusted with the Border Roads
Organization (BRO) at present is about 5,5 12 km passing thorugh the States / UTs of
Andhra Pradesh, Arunachal Pradesh, Assam, Chhattisgarh, Himachal Pradesh, Jammu &
Kashmir, Maharashtra, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura,
Uttarakhand, West Bengal and Andaman & Nicobar Islands.
The assessed requirement of funds for improvement of National Highways with BRO
is Rs. 2,500 crore for the i 1th Five Year Plan.
New National Highways
A road vision 2021 was prepared in the Ministry, which proposes a total National
Highway network of about 80,000 km by the end of the year 2021. At present, National
Highway network stands about 66590 km which requires additional declaration of about
13410 km of state roads as National Highways to achieve this target of 80,000 km. Because
of emphasis on infrastructure sector given in recent years than it was when the Vision
document was prepared it may be desirable to achieve the target in next 2 Plan years (by
2017) instead of next 3 five year plan (by 2022). The target for new addition of length in NH
network in 11th Five Year Plan would be about 7000km. For expansion of the NH network
the following factors need to be kept in view.
O Connecting industrial complexes, important growth nodes, pilgrimage and tourist
centers and and places of economic importance.
O Filling up the grid in pockets of various regions without a National Highway.
O Providing linkages with adjoining countries.
2008 303074 303074 363689 969838 1780041 890021 1780041 4450103 9115018 4557509 13672528
200. 308244 308244 369892 986380 1919094 959547 1919094 479736 9715005 4857503 14572508
201 318848 318848 382618 1020314 2230722 1115361 2230722 5576804 11036060 5518030 16554090
17643746
2012 324286 324286 389144 1037717 2405090 1202545 2405090 6012726 11762497 5881249
Note: 3asis at estimatian-F-'ublic sectar-2.b Nas. at drivers, 2.b Nas. at canductars and3 Nas at other statt per bus; in case at private
sector requiremen ¡s placed at 2 nos. of drivers, i no of conductor and 2 nos. of other staff per bus
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Railways :u1"
Four scenarios were built based on the assumption of GDP growth rate of 8% and 10%
and rail transport elasticity of 0.72 and 0.87, with 2005-06 as the base year. Table below
summarizes the results obtained for each scenario -
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Forecasts of Traffic - Different Scenarios (Tonnes and NTKMs)
Railway's market share in the Parcels and Express Cargo is only about 1.5 per
cent of the total. Railways would plan to make a major inroad in the business and aim
at doubling of the volume and a five-fold increase in earnings (from Rs. 650 crores
currently to about Rs. 3000 crores).
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Parcel Business Projections t .
Year Tonnage (milli tones)
2007-08 7.
2008-09 .86
2009-10 8.65
2010-11 9.50
2011-12 10.45
Passenger traffic is subject to suppiy- side constraints in sorne cases and is also highly
sensitive to passenger fares; dips in dernand are invariably associated with upward revisions
in fares. Although the growth rate of passenger traffic was only 2.17 per cent during the first
three years of Tenth plan period, there has been a substantial pick-up in growth in the latter
years .This provides an optirnistic setting for the Eleventh Plan period. Three scenarios of
passenger growth have been worked out with sub-urban growth rates between 3 to 4 per cent,
non-suburban, between 7 to 8.5 per cent and overall growth rates between 5 per cent and 6
per cent. (Table below)
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YEAR
2006-07
(BE)
Growth
Sc.2 Sc.3
The opening up of the economy, renewed emphasis on passenger business and the increased
propensity to travel has resulted in the increase in the number of passengers. Keeping in view
these factors it is expected that there will be 3 per cent growth in suburban traffic while
overall passenger traffic (suburban and non-suburban) is expected to grow at the rate of 5 per
cent per annum.
The share of upper classes in the overall passenger traffic is less than 1 per cent and that in
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the non-suburban segment slightly higher at 2 per cent. However, its share of the overall
passenger earnings is much higher at 18 per cent. It is expected that with increasing
prosperity and aspiration levels, the current trend of higher growth of upper-classes
especially AC-3 Tier would continue. Class -wise projections of growth of non-suburban
passenger traffic has been worked out on the basis of this assumption and is given in Table
below.
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Projection of Growth of Non- Suburban Passengers (in Millions)
Class 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Percentage
st growth (in %)
1 AC 1.30 1.37 1.43 1.50 1.57 1.63 5
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AC 13.55 13.96 14.38 14.81 15.25 15.58 3
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3 AC 23.37 25.24 27.38 29.84 32.54 35.06 10
First 0.75 0.45 0.27 0.16 0.09 0.00 -20
MIExp.
First 2.19 1.31 0.79 0.47 0.28 0.00 -20
Ordinary
ACCC 10.68 11.21 11.83 12.54 13.36 14.42 7
Sleeper 190.70 204.05 219.35 236.90 257.04 276.52 9
M/Exp.
Sleeper 4.95 5.05 5.16 5.29 5.48 5.69 3
Ordinary
Second 525.46 567.04 611.16 657.96 707.58 760.19 8.93
M/Exp.
Second 1832.19 1981.61 2138.28 2302.58 2474.90 2659.82 9.03
Ordinary
Total 2605.14 2811.29 3030.03 3262.05 3508.09 3768.91 8.93
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Shipping:
Capacity Creation and Projected Traffic in Major Ports in the Eleventh Plan
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Aviation:
(Rs. in crores)
S. Likely Resource Generation Budgetary Plan
No. Internal Extra Total Support Outhiy
Resources Budgetary
Re so uirc e s
1. Air India 7640.77 22401.00 30041.77 - 29883.67
2 Indiau 514.90 8928.00 9442.90 - 9422.90
A irliiies
3 Airports 6934.58 190644 8841.02 365.80 9206.81
Aut11o1ir of
hidiì
eaIkoft cori
P.rwan Hin 450.00 &50 - 583.50
Hdic op lei.
Ltd
5 Hotel - 2480 - 7SJJO
Corpirarion
Df bicha
6 Air India 1202 59i1 I87.P3 - 2475.25
C'huiers Ltd.
7 Directorate - - - 31.25 .l.25
Generat of
Civii Aîicn
8 Bureau of - - - 73.00 73.00
Civil Aviatioii
Security
2 Indira Gandhi - - - 1i9.82 129.82
Rashtriya
Uirì
- demi
IO Aero Club Df - - - 225.9 225.9
India
Totrd 17-t87.5 4281.3 5176&92 825.6 52I7,1
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