A Rail Budget with promise

When the Railway Minister, Mr Dinesh Trivedi, presented the Indian Railways Vision 2020 Document in December 2009, the emphasis was on moving to a higher growth trajectory, network expansion and capacity creation. The other areas of importance were train safety mission, environmental sustainability and introduction of innovative measures for reinventing passenger services and freight services. Technological excellence was also an integral part of the Vision.

Also, to enhance the effectiveness of accountability of the Railways at all levels within the Government, a framework for judicial internal reorganisation was contemplated. The ongoing work on accounting reforms was expected to be given a boost and thus to reap the benefits of better analytical tools for effective decision-making. It is a happy augury that a beginning has been made to concretise the objectives and goals enunciated in the Vision statement through the Railway Budget 2012-13.

Railways is one of the most studied organisations. Recent additions to the plethora of reports are the ones on safety and modernisation. The high-level railway safety committee recommendations have been sought to be implemented by eliminating the unmanned level crossings in the next five years. Yet another announcement is about the setting up of a Railway Safety Authority.

Signalling safety

Railways has been taking a number of steps to achieve zero level tolerance for accidents. The Vision document stresses the importance of a combination of technological and human resource intervention. Notable among them is the introduction of advance in signalling technology and train protection systems.

The Budget contemplates introduction of such systems over 3,000 km. All these measures are welcome; it may be noted that a more detailed corporate safety plan has been prepared and a systematic follow-up of the plan would have enabled the Railways to reach the desired level of safety.

A satisfactory feature of the Budget with regard to capacity augmentation is the modernisation of 19,000 km high density network, which carries 80 per cent of the traffic.

The measures taken through setting up of Special Railway Safety Fund in 2001-02, coupled with the policy decisions taken on freight traffic for heavy axle load movement, were considered to be crucial steps in meeting the demand for freight traffic when the economy was doing well.

Similar benefits will accrue to the Railways to realise the contribution of 3 per cent of GDP by 2020, which translates into Rs 2,70,000 crore of revenue, nearly a three-fold increase from Rs 90,000 crore for 2010-11. Since the dedicated freight corridors are not progressing at the expected speed, the focus on high density network or the golden quadrilateral is significant.

The revised estimates of 2011-12 indicate an adverse trend, as the operating ratio, which was expected to be 91.1 per cent, is likely to go up to 95 per cent. Yet another worrisome feature was the interest bearing loan of Rs 3,000 crore given by the Finance Ministry.

Even with the reduction in the dividend rate by 1 per cent (from 6 to 5 per cent), thanks to the convention committee recommendations, the revised estimates for 2011-12 definitely sent warning signals. The internal generation of resources, which was projected over Rs 5,000 crore also had not materialised. Given this scenario, the Railway Minister had no other option but to increase the passenger fares, which had not been touched from 2002-03.

A more positive aspect of this enhancement is that the suburban fares have also been touched, and it is not the holy cow it used to be.

Accounting reforms

The Budget talks about a high-level committee to examine the need for a rail tariff regulatory authority. The recommendations of the committee, the Minister promises, will be discussed in Parliament.

There is also a mention of a linkage with the fuel component of the cost. These are steps that indicate the seriousness with which the issue of cross-subsidisation is being addressed by the Ministry.

In this context, the importance given for the completion of accounting reforms is appropriate as the traffic costing in Railways has been a highly complex one with a substantial portion of joint costs (costs which get allocated between passenger and freight, on ratios). The accounting revamping contemplated will be able to capture the cost of running a passenger train in a more accurate manner. No further time should be lost in implementing this valuable tool.

It is generally believed that the Railway's weakness is its failure to offer a door-to-door service like the road. Though there are sidings which serve the same purpose and the Railways had also introduced a number of policy measures to make the construction of private sidings more attractive, the response has not been positive, except for bulk commodities.

In this context, the announcement that a logistics corporation to provide a total logistics solution will be set up may be appreciated by the industry. The corporation should really concentrate on capturing the high-rated commodities to increase the rail co-efficient.

Plan outlay

The Railways Plan outlay is a matter of interest to the industry. There has been only a marginal increase in the total Plan outlay, though it has been claimed that the figure of Rs 60,100 crore is the highest ever.

With gross budgetary support falling short of the demand (Rs 25,000 crore as against Rs 45,000 crore) and internal resource generation yet to pick up, it is not possible to expect a higher outlay. Since the 11{+t}{+h} Plan outlay is likely to show a shortfall of Rs 30,000 crore, the Railways may have to step up their efforts to achieve the targeted 12{+t}{+h} Plan outlay through the much-talked about public-private- participation route. The Budget rightly recognises the need to augment the Depreciation Reserve Fund if only to avoid a repeat situation of the arrears in the replacements and renewals which would have the disastrous effects of crippling the system.

The Fund, which had a healthy balance of Rs 4,000 crore, during 2005-06 has been dwindling and reached Rs 5 crore, as of March 31, 2011. Hence, appropriation of Rs 9,500 crore provided for in the Budget for 2012-13 is warranted.

The Railway Budget thus has embarked on a mission to reach the Vision by 2020. The measures announced indicate the earnestness to put the organisation back on the rails and come out of the financial slide.

Now that a small beginning has been made, it is anticipated that the tempo will be maintained for restoring the financial health of the system.

(The author is former Financial Commissioner, Railways.)

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