Rerailing the Railways

Putting behind a difficult year, the Railway Budget for 2021-22 has done well to focus on asset creation. This marks a return to the earlier pattern of the Budget resources going entirely to fund the capital expenditure of the national carrier — the Budget funds about 40 per cent of Railways’ capex, with the rest coming primarily from market borrowings (50-55 per cent), internal resources of the Railways and PPPs. The current fiscal has been an aberration, thanks to Covid. With the Railways falling short for meeting its working expenses, the Centre has extended a loan of ₹79,398 crore to plug the gap — a shortfall of ₹63,000 crore out of gross traffic receipts of about ₹2.2 lakh crore. As a result, budgetary support to capex was shrunk to just over ₹29,000 crore this fiscal against the budgeted ₹70,000 crore. This is even as the Railways’ capex appears to have exceeded the budgeted ₹1.6 lakh crore on the strength of borrowings.

The areas in which the revised capex of ₹2.4 lakh crore for this year has been deployed is not clear. Despite the accent on transparency in the Budget as a whole, this remains a lacuna. The rail capex for the next fiscal at ₹2.14 lakh crore includes a private sector contribution of over ₹23,000 crore, which seems much more than the amounts actually invested in recent years. The Budgetary contribution of ₹1.07 lakh crore for 2021-22 marks a return to the earlier balance, hopefully reducing the dependence on borrowings. If pension obligations are fully taken into account, the operating ratio for 2020-21 (the ratio of working expenses to revenues) is in the region of 131.49, as conceded in the Budget fineprint, but that is only to be expected in an extraordinary year. On the face of it though, the operating ratio for the current fiscal is estimated at 96.96 and the next fiscal’s at 96.15. The Centre seems to have squeezed its Rail budget obligations this year. It is worth considering whether a force majeure hit borne by the Railways should have been reimbursed as a loan or as a grant, or some combination of the two.

It is laudable that recent rail budgets have focussed on infra creation. This focus is consistent with the National Rail Plan’s objective to increase the Railways’ share in freight movement from 27 per cent at present to 45 per cent in the next decade or so. This would require an investment of over ₹13 lakh crore, as estimated by the National Infrastructure Pipeline report, in laying tracks and improving speed and safety. Further freight rate rationalisation and improvement in service delivery can enable the Railways handle smaller parcels. Passenger fares can be raised to an extent to meet costs. The focus should be on bringing the operating ratio to below 90 per cent. The Railways can provide huge efficiencies to the rest of the economy if the next few years are well managed.