The Hindu Business Line : Falls short of the extra mile

The general public may be happy with the fare reduction and concessions handed out. But the Rail Budget fails to address certain issues that are vital for the Railways’ sustainability as also for growth of the infrastructure sector, says VIJAYALAKSHMI VISWANATHAN.

The Railway Budget presented by Mr Lalu Prasad, predictably concentrated on the passenger segment — the visible and most commonly felt interface of the Indian Railways. The Railways’ bread and butter, however, is freight, which contributes nearly two-thirds of its revenue and, hence, has to be nurtured.

There appears to be a view that the rosy picture of incremental loading will continue which, unfortunately, fails to take note of the deceleration in the economy and manufacturing sector. The Railways hopes to achieve an anticipated loading of 850 million tonnes in 2008-09 through its dynamic differential and market-responsive freight policy. The Budget also announces additional powers to General Managers to meet this target.

Apart from this, the budget neither proposes any initiatives nor spells out the impact of a number of schemes announced as a part of the last budget’s dynamic pricing policy. The loading figures at end-January ‘08 show less than double-digit growth, which is a matter for concern.

The reduction in freight rates announced for diesel and petrol, presumably to offset partially the hike in prices effected recently, has to be matched by an aggressive marketing drive as the loading of POL (petroleum, oil and lubricant) products has registered a meagre 2.8 per cent increase over last year, though the budget for 2007-08 reduced the classification of petroleum products from 220 to 210, bringing down the freight by about 5 per cent.

In the light of this, the budget’s anticipation that the cumulative reduction of freight rates for these commodities by about 17 per cent in the last three years will make it competitive, does not appear certain.

Passenger-friendly

On the passenger front, there has been handsome growth in earnings (14.2 per cent up to January 2008) while the number of passengers has increased by 5.6 per cent.

A number of IT-related initiatives has been announced or carried forward to make the ticketing process user-friendly.

This is an area which needed urgent attention and has rightly been addressed. But across-the-board fare reduction, coming on the heels of a one-rupee reduction in the last two budgets, will burden railway finances and inflate the subsidy bill, which already stands at over Rs 6,000 crore (2006-07 R.E.).

The annual plan, at Rs 37,500 crore for the year 2008-09, though higher than the current year’s outlay of Rs 31,000 crore falls short of the annual requirement of Rs 2,50,000 crore projected for the next five years. The status of Public-Private Partnership initiatives, including the stage at which the Dedicated Freight Corridor stands, has not been highlighted to appreciate the manner in which the outlay gap will be bridged.

The budgetary support of Rs 7,874 crore is less in terms of percentage of the figure for the current year (from 22 per cent to 21 per cent). Considering that the infrastructure sector requires to be given a boost to sustain the anticipated growth in the economy, this is rather worrisome and needs correction, even at this stage. The Railways will have to make concrete plans and approach the Finance Ministry with viable proposals.

The Railways have been following a policy of manpower planning consistent with the requirements for safety and security.

Manpower planning

Filling-up vacancies in the security department, supported by upgradation of facilities, such as introduction of metal detectors and screening, may make rail travel more secure.

The decision to man the unmanned level-crossings, however, has extensive cost implications and needs careful scrutiny. The budget for 2008-09 also contemplates taking over of the sick public sector wagon manufacturing units at Mokhama and Muzafarpur. This, again, will have manpower implications and may have additional financial repercussions.

Manufacturing units

Since wagon manufacture is largely in the private sector, with the sole exception of Golden Rock Workshops, the decision that the Railways will take over the units may not be appreciated. In the last two budgets a number of units to manufacture locos and wagons under the Ministry of Railways have been announced. In the current budget also, a wagon manufacturing unit and a coach manufacturing unit are proposed.

Such expansion of manufacturing units should be based on proper cost-analysis, as it is well known that overheads in departmental undertakings are substantial. With the impact of the Sixth Pay Commission recommendations staring at the Railways, there is an urgency to follow a well-thought out human resource policy. But there are no indications of this in the Budget.

Railway finances

The fact that the railway finances may face strain during 2008-09 is evident from the slide that the operating ratio demonstrates. It is anticipated to go up to 81.4 per cent from 79.6 per cent (B.E 2007-08). But even this appears to be an optimistic projection if one takes note of the estimates for the sundry earnings, which has been put at Rs 5,000 crore, a 250 per cent increase over the budgeted figures for 2007-08. Further, Ordinary Working Expenses also provide for only Rs 5,000 crore towards the anticipated recommendations of the Sixth Pay Commission, which seems inadequate. The pension liability has also to be reckoned with.

Thus the Railway Budget fails to address certain important issues that are vital for the sustainability of the Railways as also for the growth of the infrastructure sector. Serious financial analysts may find this unacceptable, though the general public will be happy with the fare reduction and concessions handed out!

(The author is a former Financial Commissioner, Indian Railways.)

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