The Hindu Business Line : Railway Budget — Balance populism with pragmatism

The Railway Minister, Mr Lalu Prasad Yadav, has ruled out any increase in sleeper and second-class fares, though that is the main avenue for substantial resource generation.

AS he presents his maiden Rail Budget this Tuesday, Mr Lalu Prasad Yadav, will have to balance populism with a fragile recovery in the finances of the world's second largest railway system.

Mr Yadav's predecessor, Mr Nitish Kumar, has left behind slightly healthier numbers than he had inherited from his predecessor, but Railway finances continue to be rather fragile.

Mr Yadav will be comfortable about the fact that demand for Railway services is picking up and the Railways is now able to at least generate a small surplus from its operations. It is also able to partly repay its dividend liability to the nation.

At the same time, the Railways is entering into a heavy investment phase that will require a heavy dose of external funding to meet the safety and expansion works to which the organisation has already committed itself.

Added to this would be the expectations of Mr Yadav's constituency in the immediate future with Bihar looking at elections early next year and those of the entire nation from a new Government.

In his internal meetings with his officials, Mr Yadav completely ruled out any increase in sleeper and second-class fares.

Railway Board officials privately admit that any substantial resource generation can only occur by raising passenger fares for the lower classes which was expected to yield Rs 10,420 crore during 2004-05 as per the projections made in the interim Budget for the year.

With upper class fares already having exceeded the discounted airline fares on most trunk routes, the Railways have little flexibility in increasing upper class fares. The total earning from upper classes is not very high either at Rs 3,779 crore projected for the year.

"While even a 5 per cent increase in the fares of the highly subsidised lower classes can yield Rs 500 crore extra revenues, for upper classes to generate a similar amount, the increase would have to be in the region of 10-15 per cent. Why would anybody want to block a large amount of money with the Railways for so long when he can get great discounts on apex fares from the airlines if he books in advance," a senior Railway official said.

Freight rates, which contribute 66 per cent of the total income of the Railways, are already quite high and the Railways has been struggling in the last few years to regain the market share lost to the roads sector.

Despite marketing drives, the Railways has just about been able to arrest the slide in freight business.

While in terms of loading, the Railways exceeded its own expectations in 2003-04, it failed to translate into hard cash for the organisation.

The figures for year ending March 31, 2004 indicate that the Railways has earned Rs 42,516.08 crore, about Rs 40 crore less than the revised target for total earnings for 2003-04.

The interim railway budget had already revised the target downwards which in effect means that the earnings are about Rs 930 crore less than the original target. This fall is largely accounted for by freight business.

Incidentally, the initial target of 540 million tonnes loading for 20003-04 was revised in December last year to 550 million tonnes.

The final figures were even higher at 557.75 tonnes. So, the important lesson learnt during the year was that margins would continue to be under pressure despite increase in business.

The Minister is likely to retain the target of a "20 million tonne increase" (577 million tonnes) envisaged in the interim budget.

Against this backdrop, the Railways minister is likely to announce a 5-10 per cent impost on upper class fares and leave lower class and freight rates untouched.

As this marginal hike would make little impact on the revenues, Mr Yadav would be tempted to present, at least on paper, additional revenues from "alternative sources of income".

Armed with the last report of the Parliamentary Standing Committee on Railways, Rail Bhavan mandarins are understood to have advised the Minister to explore additional revenues from alternative sources such as surplus land and commercial publicity on Railway property, tried out rather unsuccessfully by Ms Banerjee.

There is talk of reviving the proposal of "harnessing the surplus land resources" with the Railways, and the Minister is likely to make some announcement in this regard. An earlier proposal to set up 100 budget hotels across the country may also be revived.

While the plan may appear attractive on paper, the Railways had to abandon it because of resistance from State governments, who claim the land, which originally belonged to them, had been given to the Railways for running train services.

The States say that if the Railways plans to exploit the surplus land on commercial basis, the land use norms need to be changed and a fair portion of the additional revenues shared with them.

On the capital expenditure side, while it may be easier for the Railways to generate resources through a combination of Government support, multi-lateral funding and through Indian Railway Finance Corporation, there is a cost attached to the funds.

The Railways is required to pay a "dividend" in perpetuity at the rate of 6.5 per cent for funds from the general exchequer. Funds from other sources also carry a cost.

Even if the Railways is able to mobilise funds, it would be an exercise in futility it cannot generate enough revenues and surplus to service this debt.

"Connecting every village with a Rajdhani Express may be a great social and political idea, but unless it can pay for itself, such heavy investments should rather be avoided," the official said, referring to the Rs 20,000 crore scheme to connect remote areas with the Railway network announced by Mr Nitish Kumar in his interim budget speech.

How Mr Yadav balances these contradictions will be known only on Tuesday.

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