The Hindu Business Line : Rail Budget: Populism or pragmatism?

By all indications, the Railways Minister, Mr Lalu Prasad, may have no choice but to bite the bullet. The realities of hard finance leave him little scope to be populist or bow to pressure of coalition politics. G. Srinivasan looks at the opt ions and compulsions of the Railway Minister in making the second Rail Budget of the UPA Government.

The Railways Minister, Mr Lalu Prasad must strike a balance between populist/coalition compulsion and realities of hard finances.

IT MUST have been taxing times for the Railways Minister, Mr Lalu Prasad, what with the Bihar Assembly elections happening in the week running up to the Rail Budget. And how well he managed both will become clear on the afternoon of February 26, when the results of the elections and of his Budget (if it can be called that) will be out.

There is much expectation from Mr Lalu Prasad's second Budget, which he will unveil on February 26. After the please-all maiden Budget in July 2004, he must, it is felt, necessarily strike a balance between populist/coalition compulsion and realities of hard finances.

Speculation, which is generally at its height at this time, suggests that the Minister will have to bite the bullet because the Planning Commission appears to have not ceded to a bigger budgetary support as there are competing demands from other infrastructure sectors. In a November presentation to the Committee on Infrastructure, headed by the Planning Commission Chairman and Prime Minister, Dr Manmohan Singh, the Railway Ministry officials voiced concern over the issue of expansion/development of network in the face of the poor financial health of the system. They cited the capacity constraints on high-density network, inadequate connectivity of ports to hinterland, inadequacy in terminal facilities affecting traffic, and the non-availability of high-speed freight corridors.

The Railways proposed that the capacity constraints could be solved by doubling track, improving signalling and enhancing throughput works and sought to ensure adequate wagons through increased procurement and improved turnaround. The Railways concedes that the extant track is unfit for heavy haul (25 tonne axle load and higher) or high speed operations. Modernisation of identified routes for 100 kmph freight operation and procurement of rolling stock capable of high speed and high axle load entail massive investments.

Funds will also be needed for the introduction of 150 kmph trains, new coaches offering better passenger comfort, expansion of the passenger reservation system, automation of parcel management system and extension of coaching operations information system.

In November 2004 the Railways had unveiled an integrated railway modernisation plan for 2005-2010 with an outlay of Rs 24,000 crore, envisaging funding through a Special Railway Safety Plan (Rs 4,000 crore), increased internal generation (Rs 4,000 crore), market borrowing (Rs 6,000 crore) and the balance through enhanced budgetary support of Rs 10,300 crore, spread over five years. This fiscal, the Railways annual plan was pegged at Rs 14,498 crore involving budgetary support of Rs 7,028 crore (48 per cent), internal generation of Rs 4028 crore (28 per cent) and market borrowings by the Indian Railway Finance Corporation (IRFC) of Rs 3,400 crore (24 per cent).

As the Railways pitches for higher budgetary support to bolster its operations in the face of escalating input and social costs estimated at Rs 5,735 crore, and had to account for cross-subsidising of passenger fares by freight and running uneconomic lines, the Planning Commission may give some breather to the Railways by stepping up substantially the annual Plan outlay for the next fiscal. In the event of this not happening because of the Finance Ministry's reluctance, the Railways may be forced to go for costly borrowings or pare down modernisation plans which could strain the system further.

The Railways is left in an unenviable position of scurrying for resources to run the 63,000-route km (16,000 km electrified) network with a one million staff. A comparison with the Chinese Railway is revealing. In 2003, the Chinese Railway had a 73,000-km network (19,000 km electrified).

Whereas the Indian Railways originating freight was 518.7 million tonnes, the Chinese Railways hauled 2204 million tonnes. But the number of passengers was 5048 million in India against 973 million in China. For the Indian rail user, wagon shortage is a major problem; ironic when freight fetches the best return and even subsidises the passenger traffic. If the Chinese Railway puts premium on movement of freight and charges cost-plus for passengers, why should India be allergic to aligning price to cost for passengers?

Besides the genuine inability of a large number to even pay the subsidised fares, there is politics. Successive Railway Ministers used the system as their fiefdom and refused to get real about the brittle finances of the corporation. When freight movement demands celerity to compete with alternative means of transport, particularly roads, and wagon shortage needs to be surmounted, the Railways cannot focus only on ferrying passengers at below cost price as enterprises are not run on charities in these days when market forces resolve efficient allocation of resources for even development. This year when steel and diesel prices shot up (the Railways is by far are one of the largest consumers of steel at nearly 1.4 million tonnes every year and uses 2000 million litres of diesel), the Railways jacked up only freight rates for coal, iron ore, limestone, dolomite, gypsum, bauxite, manganese ore, cement and clinker effective from November 27, 2004 by 7.7 per cent to mop up Rs 400 crore for the rest of the fiscal.

If the political dispensation thought it unwise to make passengers pay a tad more than now, it is time that the Railways tried to realise pending dues from other users. For instance, the State electricity boards (SEBs) owed the Railways Rs 2,979 crore as on September 30, 2004. The resources of Railways should not be seen by users of the system particularly SEBs as interest-free working capital.

Other than the core activities of movement of men and material, privatisation or contracting out most of the peripheral activities such as production units of coaches and wagons, maintenance of all services for users, and sale of surplus land (estimated at 43,000 hectares) for commercial exploitation need to be given an impetus if the investment constraints plaguing the funding of crucial modernisation and maintenance of rolling stocks and assets and amenities and safety of users, both people and industrial goods, are to be overcome.

The Expert Group on Railways has estimated that the organisation would need, even in a low-growth scenario, a minimum of Rs 1,30,000 crore for line augmentation, technological upgradation, network expansion, rolling stock addition, and safety aspects standards. The estimates for the medium and high growth scenarios rates are Rs 1,60,000 crore and Rs 2,00,000 crore respectively. India's aspirations to move on to the high growth path would be severely affected if its key transport infrastructure is starved of funds for expansion, modernisation and technological upgradation both for passenger and freight movement.

Even as the Union Government has made a strong case for funding for the Railways from the World Bank, the Bank, in its latest country strategy for India in September 2004, maintained that the "Indian Railways has suffered operating losses due to unfunded public service obligations and increased competition from road transport." The Bank said that though its involvement could help improve the quality of public expenditure, ease critical capacity constraints and improve safety results, reforming the Indian Railways is "a high-risk proposition with its 1.5 million employees and a very traditional approach to the railway business." In a blunt statement, the Bank said that it would consider supporting a major investment programme provided that the investment is economic and consistent with Indian Railways' reform agenda of moving towards becoming a commercially viable entity."

With Dr Manmohan Singh setting store by "out-of-the-box thinking", one can only hope that the Railway Minister will not allow his cultivated image as a messiah of poor to come in the way of undertaking root and branch reform of the system so that the Railways can be run on sound commercial principles. Whether Mr Lalu Prasad will move away from the beaten track and lay a new line to prudent management of the finances of the Railways will be known on February 26, when he rises to present the second Rail Budget of the United Progressive Alliance (UPA) Government.

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