The Hindu Business Line : Will Railway Budget tread the reforms track?

BEING the first major occasion to keep aloft the reform credentials of the United Progressive Alliance (UPA) Government led by the Prime Minister, Dr Manmohan Singh, much is expected on the Railway Budget 2004-05 to be presented in Parliament on Tuesday by the Union Railway Minister, Mr Laloo Prasad Yadav.

Sources in the Government contend that though Mr Yadav has a known penchant for populist measures that might aggravate the brittle finances of the Indian Railways which have been saddled with over-aged tracks and rolling stocks mainly deployed in the high density inner-city corridors with safety records causing concern to the travelling public, the Railway Minister might not have had any free run in formulating the Rail Budget.

The Railway Minister has already had a round of meetings with the Prime Minister and the Finance Minister in recent days to reflect the Government's commitment to good governance as outlined in the Common Minimum Programme.

With input cost such as high speed diesel and coal escalating in the wake of price revisions and the budgeted operating ratio at 93 per cent for 2004-05 in the interim Rail Budget — Operating costs as a proportion of revenues which had climbed close to 100 per cent at the inception of this decade had since fallen to 92.3 per cent in 2002-03 — is still not sufficient to cover depreciation, maintenance and expansion.

Railways' revenues, primarily traffic earnings which are based on the assessment of traffic output of passenger freight and parcel traffic and also the anticipation of sundry earnings (the later covers utilisation of railway land) in the fiscal 2003-04 were characterised by spectacular freight loading that exceeded the revised target of 550 million tonnes (m.t.) to touch 557.39 m.t.

In 2002-03, freight loading at 518.74 m.t. surpassed revised target of 515 m.t. But the higher freight loading was achieved through substantial spurt in volume of commodities hauled than by any increase in revenue because of the Railways' calculated bid to keep traffic by classification of certain commodities where it faced fierce competition from the roadways by way of offering concessions.

Thus more volume of high-rated commodities such as coal, steel, iron ore, cement, petroleum oil and lubricants was hauled at relatively lower rate.

Will Mr Yadav continue to ensure "the trainload of benefit for all block rakes and bulk commodities" even if that meant dip in revenue but carrying bigger and bigger freight load or resort to revision in freight to keep the finances of the system safe?

His options are not many as resistance from user industries for any adjustment in freight is too open to be brushed aside. Again revision in ordinary passenger fares and suburban tickets is unlikely to be attempted lest the protest from the Left parties and horde of suburban commuters from Maharasthra which is facing Assembly election to the State to be followed by a couple of other key States should effectively put paid to any such move.

This leaves only upper class passengers to absorb any upward adjustment in fares that might also not be criticised by the constituents of coalition partners or the Left parties. But even a modest or moderate hike in upper class passenger fares might militate against the Railways' own innovative strategy of wooing this segment from travelling frequently in train through its "flexi" fare policy.

The concept of reduced fares for the non-peak period from July 15 to July 15, September 2003 was introduced in the basic fares of AC first class and AC 2 tier in all Rajdhani Express trains. As this flexi-fare policy, patterned after airlines which originally did so to encourage wider air travel at affordable rates, has been a resounding success in the three months it was in vogue, the Railways might try to extend this to all long-distance trains instead of endeavouring to increase fare of even this class.

Considering the woeful lack of avenue for mobilising additional revenue, the Railways must perforce resort to some strategies to ensure that non-traditional sources such as commercial use of land and airspace, commercial publicity on trains and at railway premises, use of right of way for development of an optical fibre cable network with surplus bandwidth having commercial potential and innovative financing measures such as joint ventures and formation of special purpose vehicle with private participation.

Though these programmes have been discussed in the past and modestly attempted too, their success depends upon shaking the antiquated management structures of the system.

The Deputy Governor, RBI and a distinguished economist, Dr Rakesh Mohan, who headed an expert group on Railways reforms suggested tariff restructuring, increase in efficiency and corporatisation of the non-core activities such as locomotive and wagon manufacturing with a future plan for their ultimate divestiture.

Hiving off the side activities and separating policy, regulation including tariffs and commercial operations alone could guarantee room for manoeuvre in managing the Railways which is functioning like a monolithic organisation actuated more by political compulsions under the pretext of bearing social costs than as an essential mode of transport catering to the growth impulses of other economic agents operating in the economy. The UPA is thus faced with an unenviable task of unveiling its first serious economic reform intention through the Rail Budget.

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