This is the second in a series of entries that Alfred Romann will post from India in the coming weeks.
To much fanfare, India’s Ministry of Railways released a new budget on February 26. Everybody, it seemed, wanted to know what would happen to the fares and cost of freight.
Higher fares would be good for the country’s new and improving airlines and bad for people. Higher freight costs would be bad for trade and good for the bottom line.
The rail budget is a warm-up to the main budget to be released February 28, the latter generally seen as the most important economic statement the government makes every year. The rail budget is a more populist document. It directly affects people and can send stocks in airlines and freight carriers shooting up or spiraling down. It is also a crucial part of the country’s push to improve its infrastructure.
In an interesting legacy from British rule, the Ministry of Railways has its own budget while every other ministry and government service is included in the main budget.
Budget time is a big PR exercise for the government. Newspapers are thick with special sections dedicated to prognosticating and pontificating on the impact – or lack thereof – of the budget. Television stations run budget stories around the clock.
On Monday, little else seemed to matter. The news and money markets got minimal play compared to the airtime dedicated to the rail budget. Around parliament, security was tight with armed guards every few meters on the outside while inside it was pandemonium as minister Lalu Prasad told rowdy parliamentarians what to expect and bragged about a 17% jump in railway profits.
In a small but meaningful preamble, the ministry last week launched the fourth in a series of “Poor Man Trains”. Cheap, air-conditioned and fast, the new train can make the trip between Delhi and Mumbai in 16 hours.
The budget that followed was in the same vein. Fares were lowered where possible and freight charges were kept level or lowered as well. Significantly, the cost of shipping oil is down 5% and iron ore 6%. The government also plans to add new cars and trains to increase capacity.
The budget seems to ride a wave of good feeling about the future of India but it also hedges its bets, looking after those who use the train most. It is not, however, enough. In the early 1990s, India had more kilometers of track than China, but between 1992 and 2002 overall growth stalled to 1% per year, whereas China expanded its system by a massive 24% per year.
This huge difference underscores the key contrast in the countries’ respective development models. In the last couple of decades China has willed an infrastructure into being but India has barely kept pace. And, if the status quo remains, the gap will only widen.