The Hindu Business Line : Lalu cuts fares by 2% across all classes

New Delhi, Feb. 13 Mr Lalu Prasad’s rather successful run as Rail Minister has suffered a slowdown of sorts in the last year of his tenure ahead of the forthcoming Parliament elections.

The hefty staff cost liabilities arising from the implementation of the Sixth Pay Commission recommendations have virtual reversed the gains of the financial turnaround achieved by the Indian Railways in recent years under Mr Prasad’s stewardship.

Cash surplus may dip

The Railways is expected to end the current fiscal with a cash surplus before dividend of Rs 19,320.40 crore, according to the revised estimates presented by the Minister on Friday. This is way below the Rs 24,782.98 crore that was originally budgeted for 2008-09 and the actual Rs 25,006.19 crore achieved in the preceding fiscal.

Worse, the Interim Rail Budget for 2009-10 provides for an even lower cash surplus of Rs 18,846.77 crore. As a result, the Railways’ “operating ratio” – working expenses as a percentage of gross earnings – is slated to go up from 75.9 per cent in 2007-08 to 88.3 per cent in the revised estimate for 2008-10 and a budgeted 89.9 per cent for 2009-10.

The 88-89 per cent operating ratios – a rough indicator of performance efficiency – would almost approach the 92.1 per cent level of 2003-04, which was the period prior to Mr Prasad’s taking over as Rail Minister.

Pay panel costs

Much of this dip in cash surplus generation is attributable to the Pay Commission award, which will cost the Railways an additional Rs 13,600 crore this fiscal and another Rs 14,600 crore in 2009-10.

To put it in perspective, the extra outgo would account for nearly 17 per cent of the Railways’ gross traffic receipts for 2008-09. Staff costs, which previously constituted 44 per cent of ordinary working expenses, will now consume well over 50 per cent.

Mr Prasad, however, sought to make light of the situation by stating that, unlike in the past, the Railways would meet the extra burden with “relative ease” this time, courtesy “its strong financial position”.

Fares slashed

He further utilised the opportunity to slash AC fares (all classes) by two per cent and a similar percentage in the case of sleeper and second class tickets costing over Rs 50.

He also announced 43 new trains, besides increasing the frequency in 14 and extending the destinations of 14 others.

The fare reductions are expected to have an annual financial implication of around Rs 700 crore, according to Mr Shri Prakash, Member (Traffic) in Railway Board.

On the brighter side, the Railways expects gross traffic revenues of Rs 82,393 crore in the revised estimates for 2008-09, which is more than the Rs 81,901 crore budgeted figure.

Revenues would overshoot budget estimates for both passenger traffic (Rs 22,330 crore versus Rs 21,681 crore) as well as goods (Rs 54,293 crore versus Rs 52,700 crore).

But the higher revenues will not help offset the damage caused by the Pay Commission award. The lower cash surpluses would mean that the Railways will have investible sums of just Rs 14,531.20 crore available to fund capital expenditures this fiscal and Rs 13,532.33 crore in 2009-10 – as against Rs 19,972.43 crore in 2007-08.

Mr Prasad has budgeted the Railways’ Plan size for 2009-10 at Rs 37,905 crore, a significant chunk of which is projected to be financed through market borrowings (Rs 8,030 crore) and investments through public private partnership (Rs 3,400 crore).

Mega projects

Incidentally, none of the mega-projects that Mr Prasad had in his previous budgets envisaged through the PPP route has taken off the ground yet.

These include the proposed modernisations of 25-odd rail stations from New Delhi to Patna, a coach factory in Rae Bareilly and two loco units in Bihar.

Even the hyped Dedicated Freight Corridor project has not proceeded beyond a 105-km long earthworks laying contract.