NEW DELHI (Reuters) – The railways minister unveiled a populist budget on Friday that froze both passenger and freight fares, disappointing hopes for major reform in a lagging sector key to the country's infrastructure growth.
The railways budget could be a possible barometer of Monday's national budget when the government is expected to unveil a spending programme to help it contain voter anger over inflation and graft scandals ahead of important state elections.
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Mamata Banerjee, an ally of the ruling Congress party, pushed private sector growth in the network, announcing 85 private-driven initiatives such as new wagon factories, and the streamlining of clearance procedures for such projects.
She also promised $12.68 billion of fresh investment, funded mostly by the government and market borrowing, that would add 1,300 km (800 miles) of track and upgrade equipment.
With an eye on winning elections later this year in the populous state of West Bengal, that would shore up support for a government under fire over a string of corruption scandals, she kept the focus on making the network affordable.
"We have taken a two-point approach," Banerjee said. "On the one hand by sustainable, efficient and rapidly growing Indian Railways, and on the other, by an acute sense of social responsibility towards the common people of this nation."
"We have attempted to combine a strong economic focus ... with a human face."
The creaking railway system in Asia's third-largest economy has suffered from decades of low investment and unimaginative policies and fallen far behind standards in emerging market peer China.
Banerjee has been criticised for a refusal to tinker with low passenger fares and enthusiasm for flagging off new passenger trains -- crowd-pleasing measures that strain the sector's finances and derail freight growth.
Her Trinamool Congress party is now Prime Minister Manmohan Singh's most powerful coalition ally. It hopes to dislodge more than three decades of leftist rule in West Bengal's elections that are due by May.
Singh's government, which has grappled with a series of crises from graft scandals to high inflation, must balance the need for its ally to win the election with overhauling an ageing network most of which was built before independence in 1947.
Amid some tentative reforms, successive governments have ring-fenced the railways ministry as a gift to a coalition ally, for whom the temptation has always been to keep passenger fares low, and set up pet projects in home states.
As a result, the state-run behemoth that employs 1.4 million people and provides them with schools, homes and hospitals, has been slow to change its ways at a time when the government is pushing an overhaul of infrastructure.
"It is oriented towards the elections. She has the election of her life ahead and she hopes to win," said political analyst Mahesh Rangarajan.
"But it does not address the larger issues of railway modernisations, and that has not happened under successive railway ministers."
In contrast to India's gleaming new airports and a racy new metro system in the capital that are testament to near double-digit growth, the railway system is used by about 22 million people a day, many of them poor.
High freight rates have pushed much cargo onto clogged roads, a costlier, slower and more polluting alternative.
Singh's government plans to spend $1.5 trillion on infrastructure over a decade to slash big power shortages and free up supply bottlenecks that have slowed growth and helped stoke inflation.
Railways could end up a laggard as the network receives 5 percent of funds from private money, the lowest figure of any major infrastructure sector.
In the budget, only $336.5 million worth of projects would come from private sector initiatives, much less than the billions the private sector spends on power plants and roads.
Banerjee announced two new wagon units to be set up as well as a 700 MW captive gas-based power plant in Maharashtra.
Shares in private wagon makers tanked after the budget as there was little clarity on how the wagon projects were to be implemented.
Additional reporting by Manoj Kumar and Nigam Prusty; Editing by Alistair Scrutton and Robert Birsel