The Hindu Business Line : Track record also matters

EVERY Railway Budget attracts criticism. If the budget of other ministries/departments were to be presented separately, they would attract similar, if not more stringent, criticism. There is a need to understand and appreciate the forces in action to be realistic in our expectations. The media and public cannot wish away the chosen system of governance.

The budgetary exercise by the Railways is primarily a process of finding means to fund the expected expenditure of running the system. This is an annual exercise by the government, based on an obsolete system of accounting on booked rather than accrual basis. It is the magic wand by which the system can show surpluses by not booking `postponable' dues and deferrable expenditure.

The state gets into commercial activities vital for its functioning — those in public interest, which give economic independence, which are essential but not being lucrative enough for private sector investments or too big for private sector to find finances and those closely connected with security.

By definition, these are output-oriented and cost consideration take a back seat. In the given situation, therefore, it is but natural that the pricing policy in public utilities is governed by net revenue requirements. The Railways is no exception to this rule. On freight tariff policy, there have been some visible improvements in the last three Budgets, which were diluted during the mid-term review of classification of commodities.

On the passenger front, the scope for continuing the internal cross-subsidy of the second-class traveller by higher-class passenger is fast diminishing. With the rates of air travel dropping sharply, coupled with greater disposable income in households, air travel is becoming the affordable option. The only delay is due to limitations in capacity and coverage. Even in second-class travel, buses are becoming the preferred option, limited only by the quality of roads in some States.

These developments are not undesirable, but unfortunately unplanned. With large investments being made in roadway projects, the moving away of passenger traffic to road and air is inevitable and in a way even desirable.

This will free the various sectors of transportation industry to function in their areas of strength. Similarly, the funding of metro projects by local State governments is also a desirable development, with the funding coming from those who benefit and the subsidies, also being met by those who gain from such investments.

Thus, the overall situation of transport sectors is slowly progressing in the desirable direction. The only negative is that it is slow and not planned. This might result in wasteful investment and may not continue in desirable direction.

In the long run, the Railway system will be essentially a long haul freight system with concentration of bulk traffic in conventional wagons and in unit trainloads and the less than train load and packaged traffic moving in containers.Pricing of freight traffic and capacity augmentation and investment decisions need to be made accordingly.

Any investments made without regard to development in the competing sectors, especially road, will affect the viability and efficiency of the Railways alone. This is so because the state investments in other sectors are only on infrastructure and policy nudges. The investments in Railways are integrated and bulky.

What needs to be done

The payments to the Indian Railways Finance Corporation (IRFC) on 10 years borrowing has overshot dividend payments to general exchequer on borrowings over the last many years. The Railways are truly deep into the debt trap. Bulk of the borrowings is for repayment and, thus, the effective rate of net borrowing is a a mind-boggling 70 per cent. The market borrowings cannot be sustained.

The true potential of capacity of a section can be achieved only through elimination of speed differential. The current maximum capacity of a double line section can doubled from the current maximum of 60 trains each way to 120 trains each way by removing speed differential and introduction of EMU/DMU stock for slow passenger trains stopping at all stations. This is not a revolutionary idea, as the highway authorities have been practicing it since long.

Procure rolling stock as per requirement and as per the capacity available.

The Railways needs to expand into true multi-model organisation by equity participation in road, pipeline, ports, and so on, to bring synergy into the system.

All investments have to be appropriate and fashion statements such as high-speed corridors, train radio, European train control systems, and so on, should be done away with.

Pension liability is serious. It is only the Railways that provides for its pension liability in the government.

There is an urgent need to introduce technology for train operation in the event of equipment failures.

What has been done

The Railways is set borrow Rs 3,400 crore through IRFC. How much are they will be paying back to IRFC and what would be the net `inflow' from IRFC will be known only later.

Instead of removing speed differential, the Railways plans to run passenger trains at 150 kmph. Thus, even if the speed of goods trains is stepped up to 100 kmph, the net capacity will reduce. The effects of cascading preferences will further slow down the freight trains.

With 20 per cent unsatisfied demand in freight traffic, investments in rolling stock and utilisation of capacity will go up in the passenger sector.

Track renewals are not being done despite massive grants.

There is no mention in the Budget of any intentions of participation in other sectors.

The fashion statements of high-speed trains continue, though the bullet train does not find a mention.

The Railways Minister seems to be happy about the safety performance. Good luck to him.

What it boils down to

The mid-term revision of classification has been glossed over.

Forty-six passenger trains have been introduced. Concessions have been granted to farmers, students, and milk producers. This, in a sector where 64 per cent of input produces 31 per cent output.

The Minister talks of vacancy charts in coaches. It looks as though he has never seen a reservation chart. Vacant berths are already indicated.

The purpose of introducing Internet-booking and expanding it to mobile phones was to reduce the need to introduce PRS terminals/centres. This was also expected to reduce staff by hiving off/out sourcing ticketing to passengers themselves.

A welcome step is the proposal to end monopoly of the Concor and planning for double stacking of containers.

Suburban passengers in Mumbai alone account for 50 per cent of all passengers carried on the Railways, and who continue to enjoy subsidy.

It would be interesting to find out who is subsidising whom in the long run. I would not be surprised if it is the poor Bihari who subsidises the affluent Mumbai customer.

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