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Resource gap haunts railways

Resource gap haunts railways
The savvy accountant in the Railway Minister Suresh Prabhu has demonstrated adroitness in presenting his second major Rail Budget, after the one he unveiled last year laying out a visionary one for five years (2015-20). Last year’s Budget laid the thrust on doubling and electrifying 10,000 km of railway tracks by 2020 entailing a massive outlay of Rs 8.5 lakh crore which was sought to be compassed mainly by roping in a variety of financial instruments other than the traditional route of budgetary support, internal resources generation and market borrowings through its own arm, Indian Railway Finance Corporation (IRFC). In his more than an hour-long peroration, Prabhu promised that the railways would exploit “new sources of revenue so that every asset, tangible or non-tangible gets optimally monetized”.

With the first year of that boldest vision document having been through in troubled times when the economy showed tepid growth and traffic volume equally dismal, this did not deter the feisty Prabhu to present another optimistic budgeting for the next fiscal. To cite his own words “the core objective is to improve the quality of customer experience at the individual level, become an engine of employment generation and economic growth at the national level and convert India’s largest institution into a template for transformation”. For an ordinary train traveler using an ordinary second class, the experience is anything but comfortable in terms of passenger amenities, ease of entry and exit from the overcrowded stations and invariably unsanitary state within the coaches and in and out of the stations.

Before the cosmetic changes and visionary blueprints the Railway Minister announced in his budget are highlighted, it would be germane to focus on the financial state of the system which is not a hale and hearty one. For the current fiscal which has got one month to go, the IR had budgeted a big jump in total earnings to Rs 1,84,000 crore, as compared to Rs 1,63,000 crore in 2014-15. Even as more than 62 percent was to flow from freight, the incremental volume of 85 million tonnes for the whole year having been derailed to a derisory level, the railways  had to reset the target to Rs 1,11,853 crore, against the budgeted Rs 1,21,423 crore.  As the economy itself was in slow growth mode, the traffic offerings—be they bulk items or otherwise, were also not sufficient enough to make the system achieve its ambitious incremental freight volume. 

Having pitched an unrealistic freight target, the authorities were ill-advised to increase the freight rates by 10 percent effective from April 1, 2015. Similarly passenger earnings fell substantially, warranted by the persistent negative growth trend since 2013-14 and the general apathy of the system to the convenience, comfort and ease of travelling public. As a result, the hapless train travelers do not mind paying a bit higher to avail of other modes of transport! The 14 percent hike in passenger fare soon after the new government assumed office without making any commensurate comforts in 2014, still rankles as a cruel thanksgiving to voters.

As steep drop in revenue could hit the internal resource generation and gross budgetary support from the government too, none very substantial, the railways have been left with little option other than  what Prabhu bluntly put it thus: “The magnitude of investment calls for abandoning the business as usual approach and continually innovating to find new ways of sourcing funds and executing projects”, he said amplifying further that these include, among others, formation of “joint ventures with states, developing new frameworks for public-private partnerships (PPP), scouting international markets for rupee bonds or engaging with multilateral and bilateral agencies”.

While most of these unconventional routes of funding entail heavy borrowings with substantial interest cost to defray in the long-gestation projects, the fact remains that IR is reluctant to lose its monopoly structure. Its appeal to States to partner for projects might not yield substantive results unless the railways show a modicum of renunciation to shift some powers to State governments in running and managing the show. Is it asking too much of the railways to let the States run suburban services within their respective territories so that a better managerial practice can be put in place, weaning the commuters from the subsidy-cum-below-par-service culture that has become the bane of the suburban trains?

For the Centre crying hoarse over cooperative federalism and functional autonomy to States, the IR can be persuaded to experiment, at least, this modest suburban service by State administration before enlisting them on big ticket projects of rail infrastructure. A modest beginning on this might definitely go a long way in inculcating new managerial practices in governance to India’s disparate States.

Given the crucial role the railways play in the national economy, it is high time the authorities get serious about running the system as the best and ably managed corporation so that its overall reach to users, both individuals and industry, would truly be transformative. From this yardstick, the budget is not bold nor does it offer a smooth pathway for progress.  

(The views expressed are strictly personal.)
G Srinivasan

G Srinivasan

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