Offloading the baggage of history

When the new government took over in May 2015, its pronouncements on growth and development were music to the ear. It displayed a sense of purpose to address fundamental and strategic issues that could restore growth impulses in the Indian economy after years of perceived policy paralysis.

As far as Indian Railways was concerned, a number of government-sponsored studies and consultancy reports had made in-depth analyses of not only the challenges faced by it but also provided a consensus on the revival strategy.

Some of the critical challenges the Railways faced, according to these analysts, included:

A declining trend of the rail market share vis-à-vis the road mode from a level of 80 per cent in the fifties to around 30 per cent today. This happened despite distinctly superior characteristics in respect of energy and land-use efficiencies and environment-friendly and safety parameters of rail in relation to road.

An insubstantial growth in basic infrastructure over the past six decades due to under-investment. The network length of 52,000 km at the time of Independence has increased by a paltry 14,000 km. This niggardly 22 per cent growth is despite a more than 15-fold increase in freight tonnage as well as passenger throughput.

An increasing quantum of cross-subsidisation of second class and suburban passenger services by freight amounting to over Rs 30,000 crore today which works out to 16 per cent of the gross revenue receipts. This is in the nature of a public service obligation (PSO) which is not being reimbursed despite the fact that non-increase of passenger fares over the last one decade amounts to a government directive on other-than-economic considerations. It may not be out of context to say that today corporates have to provide only 2 per cent of their profits (and not their overall revenues) towards corporate social responsibility under the new Companies Act.

Despite severe resource constraints investment policies have been skewed in favour of projects that are socially relevant but are financially unremunerative, and at the cost of commercially relevant and financially viable projects.

The announcements made by Railway Minister Suresh Prabhu are eminently progressive within the constraints imposed by the historical baggage he has inherited.

What are some of the positive features of the Railway Budget?

Overall, the Railway Budget 2015-16 is a distinct departure from similar exercises in the past. It has laid down a road map for the future with clear timelines and an overarching vision to make the Railways financially self-sustainable. It plans to expand and modernise overall infrastructure capacity to cater to the needs of the Indian economy changing gears to a high growth trajectory. The specific areas identified for augmentation of network capacity include:

(i) 7000 km of doubling, tripling, or quadrupling projects leading to communising of 1,200 additional kilometres worth ₹8,686 crore.

(ii) 800 km of gauge conversion and additional 77 sanctioned projects covering 9,700 km of line capacity works along with electrification at a cost of ₹96,182 crore

(iii) Traffic facility works including construction of long loop splitting long block sections and augmenting terminals and so on, costing ₹2,374 crore.

To achieve these physical outputs, Suresh Prabhu has been able to put together an innovative financial strategy. This includes:

(i) Financing of remunerative projects through market borrowings routed in partnership with railway PSUs and the IRFC. Resources of pension/insurance funds and multi-lateral and bilateral agencies can be tapped.

(ii) Setting up an infrastructure fund for raising long-term debt from domestic as well as overseas sources.

( iii) Monetising assets rather than selling them.

The operational strategy to achieve this is based on leveraging state-of-the-art technology in the area of passenger amenities, productivity of both material and human resources, and special focus on safety of operations. Increasing average speed by introducing train sets with distributed traction power is an interesting decision and will contribute to at least a 20 per cent increase in average speed. Raising the speed of mail/express trains to 60 km on existing tracks has been planned through targeted track improvement on identified circuits.

A large number of IT applications have also been identified to smoothen the customer interface area, particularly in relation to passenger business which is in the nature of low hanging fruits and can improve significantly. Helplines and an integrated customer portal to provide single interface for the customer to access different services have also been planned.

Another interesting and welcome feature is the non-introduction of new passenger trains which had become part and parcel of populist budgets in the past.

As far as good governance initiatives are concerned, some interesting innovations and proactive measures taken in the Budget included delegation of authority in the area of tender finalisation, appointment of mission directors to oversee the different mission areas identified at the level of the Railway Board and Zonal Railways, and strengthening of the PPP Cell at Rail Bhawan.

In order to change the production orientation of the Railways and transform it into becoming a logistics service provider to its valued customers, a decision has been taken to set up a National Logistic Corporation of India as a fully owned subsidiary under railway ministry.

Despite all these positive features, the minister missed a good opportunity to raise second class and suburban fares when the public had given a clear indication that this had become unavoidable to improve the quality of public amenities. This overdue step would have enhanced the ability of the Railways to finance its plan with no financing cost.

The writer is a former Member Traffic, Railway Board

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