Financial Daily from THE HINDU group of publications
Wednesday, Jul 14, 2004
Logistics - Insight
Irrelevance of a separate Rail Budget
The Railways Minister, Mr Lalu Prasad... The Rail Budget blurs the dividing line between policy-making and implementation.
Today, a separate Rail Budget has no relevance. The revenue receipts of the Indian Government in 1920-21 aggregated Rs 180 crore, excluding those of the Railways amounting to Rs 82 crore. A dominant activity then, indeed, the only one of its type and magnitude in the state sector, the Railways now has several challengers.
The Railways now commands only some 1 per cent of the GoI revenue receipts and disbursements. The unquestioned supremacy as a revenue earner which the Railways enjoyed in yesteryear has been challenged by other behemoths in the public sector. The revenue budget in the energy sector, particularly hydrocarbons, far exceeds that of the Railways.
Today, other modes, such as roads and air, enjoy a prominent share. In fact, roads carry more than 60 per cent of the country's goods. As late as in 1950-51, the Railways carried 89 per cent of India's freight, roads about 11 per cent.
Termed by The Economist as a "bizarre system introduced by the British colonial government", the Rail Budget blurs the dividing line between policy-making and implementation. The extreme visibility of the Rail Budget accentuates political compulsions. Keen to show a surplus budget, more so for accommodating unremunerative projects, unviable schemes and cross subsidies, adequate provision is sometimes denied for important requirements such as depreciation, safety, pension and development.
Of late, it has also led several of the presiding deities in Rail Bhavan to vie in populism, debilitating the whole system and impairing its viability.
An incalculable damage is done to win applause by way of specious announcements for a large number of projects, gauge conversions, new lines, train services, halts, and recruitment opportunities. An inventory of scores of such projects involving an outlay of scores of thousands of crores itself goes to suggest the utter futility of such announcements.
The Rail Budget has generally been a catalogue of new lines and new trains, new zones and new jobs, surveys and surprises. The Railway Minister, Mr Lalu Prasad's long Budget speech last Tuesday included monotonous details of mundane matters which, in fact, would normally elicit derision and disgust from the discernible Members of the House. It has degenerated into a frenzy of profligacy, a sad spectacle of Parliament relishing lists of benediction showered on different regions and constituencies.
The Rail Budget must perforce be a statement of Indian Railways' (IR) plans and programmes, its agenda of action, including for extensive re-engineering. What it must not be is a catalogue of services and surveys, trains and lines, halts and concessions which, of late, have somehow demanded almost all the attention from the minister and, strangely, from Members of Parliament.
Parliament recognises the difference between taxes and prices. Railway tariffs are the prices or charges for the services rendered. The Indian Railways Act, 1989, empowers the Centre to fix fares, freight rates and other charges.
ven in the old Railways Act, 1890, government could fix maxima and minima, while local administrations could fix actual rates. Under the new Act, zonal railway administrations are empowered to quote special rates and contractual freight rates. The convention of seeking Parliament approval for tariff changes through the Rail Budget could well be a main reason for the IR's irrational tariff structure. Likewise, trains have been, and can well be, introduced or extended by routine notifications.
At any rate, the Railways' revenues accrue to the Consolidated Fund of India and the Union Budget includes the Rail Budget revenues and expenses. The demands for grants are included in the General Budget for approval of Parliament, of expenditure from the Consolidated Fund.
When the Budget is indeed presented to India's sovereign body, the Minister should seize the opportunity to spell out the important milestones achieved and intended in the context of the Railways' long-term business plan, its vision, spelling out a durable corporate strategy, enabling the organisation to serve as an infrastructural bulwark of national economy to find its place in the global mainstream.
The occasion must help the supreme body understand the complexities inherent in the management and operation of this leviathan; it must address important issues which afflict the organisation as much as it must reflect a tangible roadmap for it to traverse for the country's lifeline that it has been, to serve the country now in the maelstrom of rapid transformation and high trajectory. It should convey in simple language how it may improve yields, brace itself for the pivotal role it must perform as a carrier of freight and passengers in the best interests of industry and trade, at the most competitive prices, safely and reliably.
The Budget should explain and answer the rationale of the Railways' revenue from freight traffic aggregating over two-thirds of the gross earnings, though demanding less than half the capacity and resources, whereas passenger services contribute less than one-third of the total earnings. Whenever compelling considerations of social justice or connectivity of backward regions involve investment and/or operational expenses, Parliament has to be urged to let the Railways be duly compensated by the general exchequer.
The Budget must be so drafted and presented that it stimulates the interest for, and understanding of, the Railways by Members of Parliament to study, analyse, and discuss the issues of financial viability, development sustainability, safety, customer-orientation, and social distributional justice in addition to the rationale and extent of subsidies as well as resource mobilisation. The Minister must not lose the opportunity to appraise Parliament of global transport development strategies veering round rail revival on grounds of environment, safety, land use vis-à-vis roadways.
The Minister needs to explain that the Central Government, as a monopoly provider and manager of rail services, cannot rightly be regulator of its tariffs.
The need for a desirable structural organisation has been examined by high powered expert committees and groups led by political leaders and economists of the eminence of Dr H. N. Kunzru, Mr K. C. Pant, and Mr Rakesh Mohan, among many others.
The Railways' corporatisation was first suggested by the Kunzru Committee as early as in 1947, further emphasised by the K. C. Pant Committee, and lately re-emphasised by the Rakesh Mohan expert group.
If the Railways is called upon to find its own resources, why should it be subjected to government pressures and policies? Why should it not be allowed to offer equity to the market? These are some pertinent fundamental aspects which need to be addressed to Parliament for healthy nationwide deliberation.
Railway development in India was brought about by private companies. Private participation in the core segment of building up rail network is already provided for. The Railways Act, 1989 has an enabling provision for private rail links being built and opened, subject to certain safety and tariff regulations.
It is not only the validity and justification of a separate Rail Budget that needs to be closely examined but also the existence of a separate Rail Mantralaya. A steady global emphasis on integrated logistics and seamless supply chain, involving an imperative need for intermodal coordination, would clearly show the anachronism of separate nodal ministries.
The practice, for example, during the tenure of Rajiv Gandhi as Prime Minister, for different departments dealing with railways, ports, shipping, roads, and civil aviation to be within the umbrella of a Ministry of Transport needs to be revived and emulated. That is how most countries world over manage and administer their transport sector.
(The author is former Managing Director, CONCOR.)
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