The Hindu Business Line : Railways: A path-breaking show

While the performance of the Railways over the past four years has no doubt been laudable, the new challenges facing the network are quite formidable, the most important being to stay on track and maintain the growth momentum, says S. D. NAIK.

Taking a positive turn.

The fifth successive Rail Budget by Mr Lalu Prasad presents a record-breaking show for the year 2007-08 in several areas — freight and passenger earnings, gross traffic revenues, return on capital employed, operating ratio, cash surplus and the likely year end Fund Balances. Thus, it has made a sound beginning to face the formidable challenges during the Eleventh Plan beginning from the current fiscal.

It may be recalled that in 2001, the enterprise was on the verge of bankruptcy and had defaulted on payment of dividend to the Government. It had no money for the replacement of over-aged assets. Hence, it was decided to create a non-lapsable Rs 17,000-crore Special Railway Safety Fund through a one-time Central Government grant of Rs 12,000 crore and imposition of a safety cess on passengers to mop up Rs 5,000 crore. In 2003, it was decided to provide extra budgetary support of Rs 15,000 crore for the Rail Vikas Nigam to strengthen the Golden Quadrilateral.

DRAMATIC TURNAROUND

The modest upturn in the performance graph of the Railways, witnessed in 2002-03, gathered momentum from 2003-04 to coincide with the improved growth momentum of the economy. While the freight loading in 2003-04 was 557 million tonnes, it is likely to be 790 million tonnes this fiscal. Thus, the incremental loading during the last four years amounted to 233 million tonnes, which is 160 per cent of the incremental loading registered in the entire 1990s decade.

The cumulative cash surplus of the Railways before dividend during the four years ending 2007-08 would be Rs 68,778 crore. The cash surplus of Rs 25,000 crore during 2007-08 will be 25 per cent higher than that of the previous year. This dramatic transformation of railway finances could be attributed largely to the better utilisation of existing assets and dynamic pricing.

The twin strategy of reducing the turnaround time of wagons and increasing the load per wagon earned significant additional cash surplus for the Railways. In addition, the innovative approach last year of offering 30 per cent discount in freight on empty flow direction of wagons also paid good dividends to the Railway administration. The scheme will be further liberalised next fiscal.

In the case of passenger fares, the efforts were concentrated on increasing the length of passenger trains instead of increasing fares. During 2004-05 to 2007-08, some 3,000 additional coaches were added to the existing trains, thereby earning an additional Rs 2,000 crore.

INVESTMENT PLANS

The proposed Annual Plan outlay of Rs 37,500 crore for 2008-09 is the largest ever so far on top of the previous year’s Rs 31,000 crore. Of the Rs 37,500 crore outlay, a chunk of Rs 21,126 crore (over 56 per cent) will come from internal generation of resources, Rs 7,874 crore from General Revenues and Rs.8,500 crore from Extra Budgetary Resources.

The higher Annual Plan outlay for 2008-09 has to be seen in the context of the massive investment of Rs 250,000 crore proposed by the Railways during the Eleventh Plan period. Of this outlay, as much as Rs100,000 crore is expected to be garnered through public private partnerships (PPPs). The PPPs will be sought for developing world-class stations, rolling stock manufacturing, multi-modal logistics parks, running of containers etc.

There will be a special emphasis on the development of High Density Network comprising 20,000 km that carries 75 per cent of Railways’ goods traffic. Many of these routes are fully saturated with capacity utilisation in excess of 100 per cent. Since enhancing the capacity of these routes is vital for the future of the Indian Railways, an investment of Rs 75,000 crore is proposed to be made over the next seven years to augment the line capacity on these routes.

The blue-print prepared for the High Density Network includes phased execution of capacity augmentation. This will include work on dedicated freight corridors, doubling of third and fourth lines, bypasses, flyovers, automatic signalling works etc.

NEW CHALLENGES

While the performance over the past four years has no doubt been laudable, the new challenges facing the Railway network are quite formidable, the most important being to stay on track and maintain the growth momentum. Since much of the growth in freight traffic, revenues and cash surpluses over the past four years can be attributed to the better utilisation of existing assets and buoyancy of the economy, maintaining the same growth momentum will be quite difficult.

This is evident from the projections for 2008-09 given in the Rail Budget for 2008-09. Traffic growth is expected to be slower even as costs are expected to escalate. Growth in freight earnings in 2008-09 is projected at 10.4 per cent, down from 14.4 per cent in 2007-08. The freight loading target of 850 million tonnes is just 7.6 per cent higher than the current year’s 790 million tonnes.

Similarly, the growth in passenger earnings is slated to come down from 14 per cent to just 8 per cent. The growth in gross traffic revenues is expected to come down from 16 per cent in 2007-08 to 12.6 per cent in 2008-09.

The return on investment is expected to drop to 15.8 per cent from a high of 21 per cent achieved in 2007-08. Consequently, the operating ratio is projected to worsen to 81.4 per cent in 2008-09 from the all-time low of 76.4 per cent in the preceding year.

Moreover, the provisioning for the Sixth Pay Commission’s award is expected to take the sheen off of numbers in the coming year and beyond. The latest Budget has made an ad-hoc provisioning of nearly Rs 5,000 crore for the anticipated recommendations of the Commission.

NEW URGENCY

As Mr Raghu Dayal, former MD of CONCOR has aptly put it: “Having reached one peak, IR can ill afford the luxury of relaxing on a plateau”. There is a new urgency to accelerate the pace of modernising the network since the increased loading of wagons will speed up the wear and tear of already over-aged rail infrastructure which is bursting at the seams.

Safety concerns are not being adequately addressed. About 1,500 rail accidents were reported during the seven-year period ending March 2007 killing more than 600 people and injuring 2,000. There were as many as eight lakh signal failures in seven years.

It is time to put an end to populist measures such as continuously subsiding lower class fares from freight earnings. Mr Lalu Prasad has resisted from raising the lower class fares for five consecutive years even as operating costs have risen and the system has been incurring a loss of about Rs 5,500 crore per annum on second- and sleeper-class fares. In addition, there is a loss of Rs 1,100 crore on parcel and luggage segments.

Indian Railways has to traverse a long way before it can match the standards of some of the Asian countries, let alone global standards. Greater attention needs to be paid to improve the speed of trains, their punctuality, cleanliness, passenger amenities, and so on.

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