Rail budget with a clear vision
10 July 2014 9:17 PM GMT
Few would believe their ears when the Union Railway Minister D V Sadananda Gowda presenting the maiden railway budget of the BJP-led National Democratic Alliance government frankly conceded that an organisation of big magnitude ‘vested with varied responsibilities is expected to earn like a commercial enterprise but serve like a welfare organisation’. Stretching the imagery further he hit the nail on the head by stating that these two objectives are ‘like two rails of the railway track, which though travel together but never meet’. What a candid confession that the system he is presiding over had been milked arid over the years by successive railway ministers who preceded him so much so that social service obligation of providing concessional carriage of both passenger and the freight had bled the system black and blue, leaving little resources for maintenance and expansion of the network!
Running as many as 12,617 trains to carry over 23 million passengers per day connecting more than 7,172 stations spread across the sub-continent, the railways run more than 7,421 freight trains carrying about three million tones every day. But the finances of this gargantuan mode of public transport have been worsening over the last several years. For instance in 2013-2014, gross traffic receipts were Rs 1,39,558 crore and total working expenses were Rs 1,30,321 crore, working out an unsustainable operating ratio of almost 94 per cent. This meant that the railways spend 94 paisa out of every rupee earned, leaving just six paisa as surplus. Even this insubstantial surplus is persistently on the wane, thanks to non-revision of fare.
After discharging obligatory dividend to the General Exchequer and lease charges for the massive borrowings the system had been drawing from its outfit Indian Railway Finance Corporations (IRFC) for rail-related work programmes, was Rs 11,754 crore way back in 2007-2008 but is estimated to be Rs 602 crore in the current financial year, the railway minister bemoaned with concern. He rightly raised the relevant point and flagged off the genuine concern that this meager surplus so generated is required to finance the plan outlay for safety, capacity expansion, infrastructure, improving passenger services and amenities.
Conscious of the need to outline a broad vision and fix the faults before the system broke, the railways had to resort to pre-budget impost and in a sort of ‘course correction’ the railways undertook fare revision in late June which will bring an additional revenue of about
Rs 8,000 crore. However, as the vision to complete the Golden Quadrilateral network alone demands more than Rs 9 lakh crore with introducing even one bullet train exacting Rs 60,000 crore, the system cannot just lean on effecting hike in fare and freight rates and burden the public to realise these funds. That is why the new rail budget has struck a different tack in a major resource mobilisation bid by willfully skirting the much-trodden path of announcing only a slew of new projects and glitzy programmes that are of a mere cosmetic nature without lending any substance or real value to the carrier even as it confronts challenges from other public modes of transport that are competitive in terms of price and quality of service.
Gowda is right in tapping investible surplus funds of railways public sector undertakings in infrastructure projects which can generate attractive returns to these PSUs. It is also proposed to lure private investment in rail infrastructure through domestic and foreign investment as the future growth of railway sector relies heavily on availability of funds with internal revenue sources and government funding having reached their limits. It is gratifying that the Ministry of Railways is seeking Cabinet nod to allow FDI in rail sector and one can confidently feel that the usual hedges and reservations from Home Ministry on sensitive sectors do not become a dampener to prospective investors. It is incumbent upon the railways to lend clarity on their proposed opening up of rail sector in core or non-core areas. Coupled with other announcements such as near plan holiday approach, prioritising and setting timelines for completion of the ongoing projects, strategic partnerships and transparency in procurements, aggressive indigenisation of imported products and encouraging development of locomotives, coaches and wagon leasing market would go a long way in corporatising the transport behemoth so that its commercial viability would complement its social obligation cost.
Another important feature in the rail budget is that though there has been a lot of talk about public private partnership for raising resources, the railways have not been successful so far in raising substantial resources through this mode. However, Gowda has said that it would be his endeavour to pursue this in right earnest as ‘it is our target that bulk of future projects will be financed through PPP mode, including high-speed rail which requires huge investments’. Analysts contend that this time around the railways would devise suitable contractual commitments for roping in private investment especially of capital intensive long-gestation rail projects.
The railway minister deserves plaudits for resisting the temptation to announce a slew of new projects or programmes which only spread the sparse resources thinly without achieving any meaningful outcome. Gowda is not off the mark when he succinctly stated that ‘it is investment in doubling and tripling to decongest the over-utilised network, which brings money to railways’. If only the pressure groups or ginger groups of MPs, MLAs and political parties realise that construction of new lines most of the times do not even meet operational cost as there is no commensurate demand, such pleas should cease for the better financial soundness of the system.
A major but buried reform measure unveiled by Gowda pertains to structural reforms of the Railway Board which due to overlapping roles of policy formulation and implementation has become unwieldy. Though he did not disclose any details about how he is going to undertake this other than hinting that he proposes to separate these two functions, the Railway Board for all practical purposes had been so far not a Board-managed body but a minister-driven one. How the functional autonomy so crucial in management of the operations of a great public transport organisation is going to be ensured without much meddling by the ministers or the government would ultimately decide how successful the Indian railways would emerge in the years ahead in managing the conflict of being a commercial organisation with a sustainable social obligation?
Running as many as 12,617 trains to carry over 23 million passengers per day connecting more than 7,172 stations spread across the sub-continent, the railways run more than 7,421 freight trains carrying about three million tones every day. But the finances of this gargantuan mode of public transport have been worsening over the last several years. For instance in 2013-2014, gross traffic receipts were Rs 1,39,558 crore and total working expenses were Rs 1,30,321 crore, working out an unsustainable operating ratio of almost 94 per cent. This meant that the railways spend 94 paisa out of every rupee earned, leaving just six paisa as surplus. Even this insubstantial surplus is persistently on the wane, thanks to non-revision of fare.
After discharging obligatory dividend to the General Exchequer and lease charges for the massive borrowings the system had been drawing from its outfit Indian Railway Finance Corporations (IRFC) for rail-related work programmes, was Rs 11,754 crore way back in 2007-2008 but is estimated to be Rs 602 crore in the current financial year, the railway minister bemoaned with concern. He rightly raised the relevant point and flagged off the genuine concern that this meager surplus so generated is required to finance the plan outlay for safety, capacity expansion, infrastructure, improving passenger services and amenities.
Conscious of the need to outline a broad vision and fix the faults before the system broke, the railways had to resort to pre-budget impost and in a sort of ‘course correction’ the railways undertook fare revision in late June which will bring an additional revenue of about
Rs 8,000 crore. However, as the vision to complete the Golden Quadrilateral network alone demands more than Rs 9 lakh crore with introducing even one bullet train exacting Rs 60,000 crore, the system cannot just lean on effecting hike in fare and freight rates and burden the public to realise these funds. That is why the new rail budget has struck a different tack in a major resource mobilisation bid by willfully skirting the much-trodden path of announcing only a slew of new projects and glitzy programmes that are of a mere cosmetic nature without lending any substance or real value to the carrier even as it confronts challenges from other public modes of transport that are competitive in terms of price and quality of service.
Gowda is right in tapping investible surplus funds of railways public sector undertakings in infrastructure projects which can generate attractive returns to these PSUs. It is also proposed to lure private investment in rail infrastructure through domestic and foreign investment as the future growth of railway sector relies heavily on availability of funds with internal revenue sources and government funding having reached their limits. It is gratifying that the Ministry of Railways is seeking Cabinet nod to allow FDI in rail sector and one can confidently feel that the usual hedges and reservations from Home Ministry on sensitive sectors do not become a dampener to prospective investors. It is incumbent upon the railways to lend clarity on their proposed opening up of rail sector in core or non-core areas. Coupled with other announcements such as near plan holiday approach, prioritising and setting timelines for completion of the ongoing projects, strategic partnerships and transparency in procurements, aggressive indigenisation of imported products and encouraging development of locomotives, coaches and wagon leasing market would go a long way in corporatising the transport behemoth so that its commercial viability would complement its social obligation cost.
Another important feature in the rail budget is that though there has been a lot of talk about public private partnership for raising resources, the railways have not been successful so far in raising substantial resources through this mode. However, Gowda has said that it would be his endeavour to pursue this in right earnest as ‘it is our target that bulk of future projects will be financed through PPP mode, including high-speed rail which requires huge investments’. Analysts contend that this time around the railways would devise suitable contractual commitments for roping in private investment especially of capital intensive long-gestation rail projects.
The railway minister deserves plaudits for resisting the temptation to announce a slew of new projects or programmes which only spread the sparse resources thinly without achieving any meaningful outcome. Gowda is not off the mark when he succinctly stated that ‘it is investment in doubling and tripling to decongest the over-utilised network, which brings money to railways’. If only the pressure groups or ginger groups of MPs, MLAs and political parties realise that construction of new lines most of the times do not even meet operational cost as there is no commensurate demand, such pleas should cease for the better financial soundness of the system.
A major but buried reform measure unveiled by Gowda pertains to structural reforms of the Railway Board which due to overlapping roles of policy formulation and implementation has become unwieldy. Though he did not disclose any details about how he is going to undertake this other than hinting that he proposes to separate these two functions, the Railway Board for all practical purposes had been so far not a Board-managed body but a minister-driven one. How the functional autonomy so crucial in management of the operations of a great public transport organisation is going to be ensured without much meddling by the ministers or the government would ultimately decide how successful the Indian railways would emerge in the years ahead in managing the conflict of being a commercial organisation with a sustainable social obligation?
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