On track

It is irrelevant whether the 14.2 per cent hike in passenger fares along with a 6.5 per cent increase in freight rates announced by the Railway Ministry on Friday merely gave effect to a decision taken by the previous government. Whether the latter’s Interim Rail Budget for 2014-15 presented in February had already factored in these increases is a matter of detail. What counts eventually is if the decision was right — in the interest of both the Indian Railways and the overall economy. On this, there is no doubt at all. India today is desperately starved of investments and there can be no better avenue for kick-starting a revival than the Railways. Besides, rail investments are necessary in their own right. We need dedicated freight corridors to slash transit time for goods. Our domestic coal production could increase manifold if only there were rail links to enable evacuation of material from mines in the country’s deep hinterlands. No less is the need for high-speed passenger trains and urban metro rail systems.

But making such investments require huge resources. The Railways’ fund balances or reserves at the start of this fiscal were just over ₹8,000 crore. Last week’s rate rationalisation will help generate an additional ₹8,000 crore or so. These are miniscule sums relative to the sheer quantum of investments contemplated. The Railways’ current annual Plan spend of roughly ₹60,000 crore ($10 billion) — compare this with the corresponding $90-100 billion that China invests — is hardly significant to make a difference either to itself or the wider economy. True, much of the Railways’ stepped-up investments in the coming years isn’t going to be funded internally. A large part of financing in many projects — be it elevated rail corridors or the ambitious Diamond Quadrilateral network for bullet trains between major metros — will have to involve foreign direct investment (especially from Japan and China) and public-private-partnerships. But the Railways may still need to take equity stakes or provide viability gap funding in these projects only to ensure they take off.

It would be useful if the next Rail Budget spells out a clear financial turnaround and investment vision for the national transporter over the next five years. This Government is uniquely placed to implement such a vision, given that it enjoys the political mandate to go ahead and also the freedom from coalition pressures. These have in the past prevented the Railways from functioning as a commercially self-sustaining entity and growth driver for the economy. The system of keeping passenger fares artificially low and cross-subsidised by freight and rail projects being allocated on ministerial whim rather than economic considerations has gone on too long. One hopes Friday’s move — call it what you will, a decision or just an implementation — is the first step towards putting a stop to this.

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