Good economics clearly does not make good politics. The Railway Minister, Mr Dinesh Trivedi, appeared set to find this out to his cost, with his own party, the Trinamool Congress, opposing his move to increase passenger fares.

Trinamool chief Ms Mamata Banerjee condemned the fare hikes and issued a stern ultimatum to Mr Trivedi: roll back the hikes or quit. In a day of swift political developments, the Trinamool Congress was set to meet the Prime Minister, with sources indicating that the party may suggest a replacement for Mr Trivedi in the Cabinet. Late in the evening, some TV channels reported that Ms Mamata had written to the PMO, asking that Mr Trivedi be dropped, and Mr Mukul Roy be inducted, instead..

Basic strategy

Though it did break with the ultra-populist trend set by his predecessors in Rail Bhavan, Ms Banerjee and Mr Lalu Prasad, Mr Trivedi's Budget was hardly radical.

He adopted the most basic strategy to improve the state of rail finances. He tried increasing revenues through a hike in passenger fares ranging from 8 per cent to 33 per cent, on top of the 20-28 per cent freight hikes announced last week. He also indicated that investments should be in areas that will generate returns in the short term.

“I had two very clear yet contrasting options — either to keep the Railways in status quo mode with just incremental annual changes or, as the phrase goes, bite the bullet,” he told Parliament.

But his ambitious bid to generate a 27 per cent increase in revenues, on the back of an average 19 per cent hike in passenger fares — the first across-the-board increase in a decade — threatens to be derailed by the political backlash.

REVENUE V/S COST

With higher earnings, the staff costs will account for 51 per cent of ordinary working expenses (FY12-13), down from 52 per cent in the current fiscal. For the single largest employer, even this single percentage point translates to a cost saving of about Rs 5,000 crore.

“By and large they (staff costs) have risen from 44 per cent of cost in 2004-05, peaked at 57 per cent in 2009-10…fuel cost has remained more or less steady,” the Railway Board Chairman, Mr Vinay Mittal, said.

INVESTMENT PLAN

On the investment side, the Railways is ploughing back investments into identified routes that are close to completion and will start giving returns in the short run in the next two-three years. This is evident from appropriation to fund balances which go up manifold.

The depreciation reserve fund — used for replenishment and renewal — will be up by 54 per cent. This will mean more demand for steel, cement and signalling systems.

The Railways proposes to achieve an impressive improvement in operating ratio — which is the expenditure per rupee earned — of 85 per cent next year against 95 per cent this fiscal.

Mr Trivedi proposed the highest ever investment plan of Rs 60,000 crore, of which, 40 per cent will come from the Gross Budgetary Support (GBS), 30 per cent from internal generation and 25 per cent from market borrowings.

PPP areas

While the Budget spells out areas of public private partnership (PPP), including stations, terminals, rolling stock units and last mile rail links, the likelihood of specific projects being awarded next fiscal is low. So, it proposes to raise only Rs 1,050 crore from PPPs next fiscal.

For expanding the freight traffic basket, the Railways also proposes to start working towards providing end-to-end freight services through a to-be-created Logistics Corporation.

Meanwhile, all eyes are set on the Union Budget, where rail freight users and high-end passengers could be hit by another hike on account of service tax imposition. On whether the Railways will consider a roll-back in case the service tax is imposed, Mr Mittal said it will depend on the market dynamics.

mamuni@thehindu.co.in

(This article was published on March 14, 2012)
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