Financial Daily from THE HINDU group of publications
Thursday, Feb 27, 2003
Logistics - Railway Budget
`Basic thrust is to lure more traffic'
NEW DELHI, Feb. 26
THE 2003-04 Railway Budget appears to be populist, with no increase in fare and freight rates. But, the Railway Minister, Mr Nitish Kumar, says the exercise this year was to entice more passenger and freight traffic to the Indian Railways with customer satisfaction as the peg.
Mr Kumar has also unveiled accounting reforms to compute the actual cost of services rendered by the Railways as well as turning the production units into independent cost and profit centres. Excerpts from an interview after the Budget.
What is the basic thrust of the Budget?
The basic thrust of the Budget is to attract more and more freight and passenger traffic, and customer satisfaction. The process of rationalisation of freight and passenger traffic, which was initiated in the last Budget, has been taken forward this year. The main idea behind this approach is to increase the share of Railways in the overall transport sector.
Why has the passenger traffic lagged behind target?
Despite the fare rationalisation carried out last year, the growth in passenger traffic has fallen by three per cent. This is mainly in the segments such as Rajdhani and Shatabdi trains which are witnessing strong competition from airlines. As one of the steps to improve this slackness in passenger traffic, we have decided to experiment with flexible fares on Rajdhani trains. An off-season discount policy will be introduced on a pilot basis for two months from July 15 to September 15 this year for AC First Class and AC Second Class Rajdhani travellers.
How do you propose to make freight rates competitive?
There has been a total business approach in the Budget. We have continued the policy of rationalisation on all freight segments including high-rated commodities such as petroleum, oil and lubricants (POL) products. We have reduced the classification of POL from 280 to 250. If the oil companies assure us long-term incremental POL traffic, we are willing to give more discounts. These discounts will be linked to incremental traffic and that too given for long terms ranging from 5 to 10 years.
We have carried out rationalisation of rates in the parcel segment where the space utilisation was hardly 15 per cent. Following the rationalisation announced in the Budget, the unutilised space will be utilised to net increased revenues from this segment. This business segment will now become a profitable venture.
Will the passenger and freight target be met?
We have fixed a freight-loading target of 540 million tonnes. Given the buoyancy in the freight traffic this year, this target will be met easily.
Even the revised estimates of 515 million tonnes for 2002-03 will be exceeded. We are also expecting a seven per cent increase in passenger traffic this year.
What are the reforms measures you have carried out in the Budget?
We have flagged off a pilot project on Southern Railways for reforming the accounting process.
It is common knowledge that the lower passenger fares have an in-built subsidy element, which is cross-subsidised by freight earnings. But, we don't know the actual extent to which the passenger segment has been cross-subsidised. For instance, the losses incurred by the Railways in running retiring rooms on platforms have been included in the passenger services. There are several such instances.
We need to know what is the actual cost of running each services/activity. The accounting reforms are aimed at evaluating the costs correctly so that the Railways can come to a conclusion on the exact quantum of cross-subsidy.
This will also enable us to quantify the public service obligations of Railways, which we feel should be funded entirely from the general exchequer. This is a major step taken by us in the reforms path.
You have also talked about turning the production units into cost and profit centres...
The six production units of the Railways have tremendous capability. These units are inducting new technology in the manufacture of coaches and locomotives. However, the capacity has not been utilised fully. Once these units are converted into separate cost and profit centres, they can compete in the national and international markets to win contracts outside the captive railway fold and improve their capacity utilisation and revenues.
Has the Railways received a big step-up in support from the general exchequer?
We have got Rs 6,577 crore including Rs 1,600 crore towards the Special Railway Safety Fund and Rs 433 from the Central Road Fund.
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