Railway Budget: Yes Merge It, But Improve Realisations!

Railway Budget:  Yes Merge It, But Improve Realisations!

The Indian Railways runs on routes covering 67,312 km., of which just 17,000 km. was put in since independence.

It may be a transportation behemoth, at the 4^th largest railway system in the world, and a strategic backbone, but it has stagnated, is in deep financial trouble, and staring at obsolescence.  

Yet it carries 23 million passengers a day, about half in suburban commuter trains. And it moved 1058.81 million tons of freight in 2015.

But, it has been steadily losing freight revenue, its mainstay, at 66% of the total.

Also, unless its charge-out rates come down, while its speed, carrying capacity, and connectivity, go up; it will die out slowly on its antique rolling-stock. It’s losing out to much improved roads, and, of late, to some shore-hugging Ro-Ro trade as well.

By 2007-08, its slice of the freight pie was already cut to 36%.  But, whatever there is, has to, by political dictation, cross-subsidise the 25% earned from passenger traffic.

But because its operating ratio (OR) on passengers is 110, meaning it loses Rs. 10 on every Rs. 100 it earns, the total losses in this segment add up to Rs. 34,000 crores.

Going forward, things could change dramatically for the Railways, once the multiple east-west and north-south dedicated freight corridors are  made functional.

Revenue for 2014-15 was Rs. 1,634.5 billion ($24 billion), with profits of 157.8 billion ($2.3 billion). But this 10% in profit goes in government dividend. So what about development, repairs, modernisation, safety?

The Railways’ or the central   government also has to fund an ambitious Rs. 4,85, 511 crore budget if  it is to finish 458 pending and ongoing projects, and play its part on a number of its public-private initiatives.

Established in 1853, the Railways acquired an independent budget, way back in 1924. Then it had a bigger spend than the general budget. Today its the other way around: the general budget accounts for an annual outlay of Rs.19.8 trillion, and the Railway Budget, almost embarrassed to be on its own, accounts for just Rs1.21 trillion.

Bibek Debroy, an economist and senior member of  Niti Aayog, conducted an elaborate  survey of what needed doing in the Railways, and recommended a merging of the Railway Budget with the general budget, if necessary, in stages.

Now Railway Minister Suresh Prabhu has also endorsed this point-of-view, and has written to the finance minister accordingly. There is fortunately, no constitutional or legal hurdle to the proposed merger.

But will this, in itself, achieve the lofty goals of coming up with a seamless national transportation policy, replete with last mile connectivity, to road, port, and destination? Will it really insulate the Indian Railways from political pressures?

It might, as Debroy pointed out, save resources, time, and eliminate some very complex interface with the ministry of finance.

But in the end, even as the Railways tries to raise resources from its huge holdings of property, from a private-public partnership to modernise the Kiplingesque railway stations, from long-term soft-loans for high-speed dedicated freight corridors, better bogies with modcons, attractive catering, and wi-fi, bullet trains, track and signals modernisation, training and safety; it must bite the bullet on raising prices on passengers, and hugely bumping up freight volumes.  

This raising of passenger prices is a thorny political nettle, but better facilities are also very much in the works. And creep-pricing may well be the best political answer, to wipe out the losses at a minimum.

Prevalent low oil prices are a boon too, and there ought to be operational savings.

As for the over–staffing, the central government may have to transfer people to ministries where they are needed. This will be possible, once the monolith of a separate cadre is breached. After all, Prabhu is confronted with having to find Rs. 77, 325 crores instead of the erstwhile Rs. 53,000 crores, for his salaries and pensions    alone, after the 7^th Pay Commission increased compensation by 23.6%.

And he has many too many amongst the 1.334 million people on the rolls, not counting pensioners. This staff count consumes 53% of revenue, and could benefit from drastic pruning. The ideal is 10-20%, for commercial viability, elsewhere.

So will the budget merger help all this? Probably not, just by itself. But it will be easier to finance things. And any heft that tames the unions and entrenched bureaucracy - VRS, transfers, incentivisation, automation is welcome. Finally, getting the Railways to adopt as many commercial principles as possible, is the best answer for its survival and growth.

For: ABP Live

(751 words)

July 16^th, 2016

Gautam Mukherjee