Financial Daily from THE HINDU group of publications
Friday, Feb 06, 2004
Logistics - Insight
Railway finances Heading towards a crisis
S. D. Naik
With margins under pressure and a growing backlog of unfinished projects announced in earlier years, the Railways' finances are already under increasing pressure. Last year, Mr Nitish Kumar had refrained from raising passenger fares with an eye on the impending polls in major States. Earlier, Ms Mamata Banerjee's successive Railway Budgets for 2000-01 and 2001-02 had left passenger fares untouched though the system has been losing around Rs 4,000-5,000 crore annually on its passenger traffic.
This fiscal, freight earnings are expected to fall short of the Budget estimate of Rs 27,115 crore by Rs 700 crore though volumes are expected to exceed the target of 540 million tonnes by about 10 million tonnes. Similarly, passenger earnings for this fiscal are projected at Rs 13,460 crore, Rs 160 crore less than the Budget estimate of Rs 13,620 crore, even as the Railways hopes to carry 2.8 per cent more passengers. The total shortfall in traffic receipts is projected at Rs 890 crore.
Against this backdrop, it is small comfort that the shortfall in freight and passenger earnings would be made up by curtailing the total working expenditure by Rs 1,523 crore during the year. The total working expenses for the year stand revised from Rs 40,850 crore to Rs 39,327 crore. Thanks to expenditure compression, the Railways will end fiscal 2003-04 with an estimated `surplus' of Rs 880 crore against the Budget estimate of Rs 600 crore after dividend payout of Rs 3,269.9 crore, which includes Rs 300 crore towards deferred dividend.
The Railways' operating ratio improved in 2003-04 at 92.6 per cent compared to 94.1 per cent projected in the Budget. But it is no better than 92.3 per cent (actual) in 2002.03. It may be noted that this ratio was 82.5 per cent in 1995-96. There is certainly scope to improve the operating ratio to 80-85 per cent with proper rationalisation of freight and fare structure.
Unfortunately, the Plan outlays of the Railways continue to remain grossly inadequate because of the poor resource mobilisation efforts. The revised estimate of Plan expenditure during 2003-04 is higher by Rs 1,000 crore at Rs 13,918 crore than the Budget estimate of Rs 12,918 crore. However, this should be viewed in the context of a fall of Rs 907 crore in actual expenditure in the previous year at Rs 11,408 crore against the revised estimate of Rs 12,315 crore. The Interim Budget has again pegged the Plan outlay at Rs 13,425 crore for 2004-05. According to experts, if the Railways are to complete the huge backlog of projects within a reasonable timeframe, the size of the Annual Plan should be at least Rs 17,000-18,000 crore.
For 2004-05, gross traffic receipts are estimated at Rs 44,482 crore showing an increase of Rs 1,877 crore over the revised estimate for the previous year. Against this, total working expenses are expected to show an increase of Rs 1,990 crore at Rs 32,960 crore. After appropriations to the Pension Fund, the Depreciation Reserve Fund and dividend payment, the net surplus for the year works out to a mere Rs 620 crore, which could be wiped out even if there is a marginal rise in fuel or other operating costs.
Even the marginal improvement in the financial health of the Railways seen over the past two years is largely on account of the extra budgetary funds generously made available to the system by the Prime Minister, Mr Atal Bihari Vajpayee Rs 17,000 crore for a Special Railway Safety Fund created in 2001 and Rs 15,000-crore for the Rail Vikas Nigam initiated last year to strengthen the Golden Quadrilateral. However, instead of using the Prime Minister's generosity to augment and strengthen the Railway finances, the Railway Ministry seems to have taken this opportunity to squander the resources on more populist and unviable projects.
Last year, Mr Nitish Kumar announced the creation of seven new Railway zones against the Railway Board's advice. This involved huge additional expenditure without any corresponding economic benefit to the system. It was clearly an imprudent decision at a time when the system was starved of funds and there was a backlog of ongoing projects worth Rs 40,000 crore. The Railway Minister has now announced a new programme the "Remote Area Rail Sampark Yojana" to take up several unfinished projects involving sanctions of Rs 20,000 crore over the next five years. Incidentally, we are told that these projects would be from among the 230 for which about Rs 43,000 crore had been sanctioned in previous Budgets with hardly any financial provisioning.
While the Railways plans to spend Rs 15,000 crore on commercially profitable projects to be undertaken under the National Rail Vikas Yojana, the Minister has now proposed an expenditure of Rs 20,000 crore on projects that will be mostly unviable. And this is being done at a time when the system's capacity to generate internal resources continues to remain limited.
Mr Nitish Kumar has indicated that the decision to accelerate completion of projects to be undertaken with the Rs 20,000 crore outlay will provide yearly employment to some three lakh persons during the construction period extending over five years. Once the projects get commissioned, they will provide permanent employment to 18,000 people per year for normal maintenance. Apart from this, it is claimed that there will be scope for providing indirect employment of nearly 55,000 persons per year.
It is indeed surprising that when the Railway system is saddled with excess staff of some four lakh workers, the Minister is talking of creating more job opportunities instead of finding way to trim the bulging workforce. Only recently, were senior officers of the Railways discussing about a Rs 5,000-crore VRS package to reduce the excess staff.
According to sources, the total wage bill of the Railways this fiscal will be about Rs 20,700 crore, of which wages will account for Rs 14,200 crore and pensions Rs 6,500 crore.
According to reports, the Railways with some 15 lakh workers on its rolls, is hurtling towards a potential pension disaster. Its pension burden is growing twice as fast as its earnings; the number of pensioners will overtake the number on its rolls by 2008 and the total outgo on pensions will match salaries by 2012. The 18 new Sampark Kranti Express Trains to provide quicker connectivity between States and the national capital may be good news for commuters.
But in the absence of any upward revision of lower-class fares, it will further add to the financial burden of the Railways. Some recent commuter surveys have shown that people will not mind moderate revision in fares so long as there is an improvement in passenger amenities and safety.
Moreover, the annual additions of passenger trains without creating the required additional infrastructure, severely limits the freight carrying capacity of the Railways.
As Mr Shanti Narayan, former Member (Traffic) of the Railway Board points out, while the freight segment generates two-thirds of the revenues of the system, the capacity available to it is only 50 per cent, since the balance caters to the passenger segment which runs at a loss. With the economy entering a higher growth path, it is time the Railways paid much greater attention to freight traffic.
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