Rail Budget: Objectives are laudable, means are blurred

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The Railway Budget for 2016-17 is supposed to be part of a continuum that was initiated by the new government last year. Railway minister Suresh Prabhu’s speech had categorically mentioned the need for long-term policies to build the huge railways infrastructure. This was definitely laudable and credit must go to the minister.

However, assumptions undergo changes that involve certain corrections and alterations. The earnings planned for last year were too optimistic, to say the least. This had also been pointed out at various fora, but the railway ministry persisted with the target. Now, a huge shortfall in earnings has been reported, at approximately Rs 12,000 crore. This amount was needed to fund capacity creation and modernisation. Any shortfall of this magnitude cannot be made good only by way of reduction in fuel cost, which came as a windfall. Tangible attempts were needed to increase earnings while reducing costs. This was not done and the budget documents show the railways internal surplus at a mere 17 per cent of its capital requirement, the lowest in the past many years.

Generating surplus from business is the cheapest source of funding; the rest has to come from external sources and has to be repaid. Any fund generated from outside, including support from the general exchequer tantamount to a loan. Long-term funds, as a Japanese loan or from financial institutions like LIC, needs to be serviced. Financial prudence demands that such inclusions are resorted to only if additional income streams can sustain them.

This year’s budget is already burdened with implementation of the seventh pay commission recommendations, raising costs to an unmanageable level. Coupled with the low growth in volumes and consequently, low earnings, the ministry has to be prudent in entering into any financial commitment. More emphasis should have been placed on increasing earnings by rationalising fares, expanding the customer base and reducing cost per unit of output, while providing value to customers. This year’s budget also assumes that revenues will grow by 10 per cent, which appears optimistic, as this has not happened so far. Planning expenditures on such a basis is bad economics.

Budget making is not merely bookkeeping, but also a statement of intent. It should clearly indicate the government’s thinking, implementation strategy and, above all, a vision. This budget gives a clear signal that passenger fares, howsoever disengaged with costs and alternate means, will remain untouched even if passengers are ready to pay for improved services. It also gives an indication that salary hikes to its own employees, howsoever steep, will not be passed on to the customers. Worse, the huge monolith called the Indian Railways will not even consider reduction in the workforce even with the help of technological aids; even though each employee will draw a higher salary and more than 65 per cent of its budget will be spent on sustaining this staff strength. If this budget conveys such a message as a conscious government decision, then all that must be said is that the government must do a rethink.

As for the strategy to increase revenues, the budget has tried to look at ways to increase its freight basket away from traditional commodities. This should be done with emphasis on RORO (roll-off-roll-on) on specific routes to attract non-bulk commodities.

Land should have been another money-spinner for the railways, especially at this critical juncture. The way to do so would not be to build universities or medical colleges on such prime properties, or even malls around stations, but utilise these assets for developing mega modern terminals for cargo handling, whether for bulk or retail, such as parcels, containers, automobiles or even milk. All railway land should be commercially utilised only by value addition to its existing lines of business.

The minister has announced that railway land would be transferred to a logistic company (Transloc or transportation logistics) to augment traditional earning streams. The asset should be converted to a cash flow in line with railway working. Building multifunctional complexes on such prime land has been tried and failed. This budget’s announcements must be implemented expeditiously.

Above all, budget must have a vision. Where does Indian Railway see itself in the not-too-distant future? What steps will the railways take to meet the aspirations of its customers, both in the passenger and freight businesses? The last government decided to build dedicated freight corridors.

This year’s budget includes high-speed passenger services, euphemistically called the Bullet train. This has been a controversial decision generating arguments in favour of and against such a decision at a time when the finances are stretched. It is time the government positioned itself in this sector where time saved is money well spent. This should be operated by a separate agency and railways should not be in this business from day one.

A related area of concern is the cost of completion, approximately Rs 1,00,000 crore for a distance of 500 km. If the project is going to be mostly financed by external loan and serviced from railways resources, a detailed exercise is necessary to reduce the burden. Lastly, marketing of such infrastructure would be required urgently. High-speed parcel services and expeditious milk transportation or even perishables should generate a substantial revenue stream — why not tap the large quantity of milk that moves to Mumbai from Gujarat daily. High-speed rail per se is welcome, but with care. Let this vision not get blurred with exuberance.

The budget also lays emphasis on improving passenger services like cleaner stations and trains, improved catering services, retiring rooms and clean drinking water and wifi on stations. These are laudable objectives which rightly should be outsourced in a manner that pricing of such facilities are market determined and not decided by the railway ministry. This is a step in the right direction.

This budget appears to be a bag full of red and green balls, some good, some of concern. The underlying glue is the financing part, which is not too steadfast. And somewhere in this bag is a ‘Bullet’ precariously balanced. The objectives spelt out are laudable; the means to do so are blurred.

(The author is former member, traffic, Railway Board)

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