Rail budget: Aiming to deliver more

In Perspective

The minister did not play to the gallery by announcing new projects to satisfy political constituencies.

Railway Minister Suresh Prabhu has been in office for more than 18 months. A lot of initiatives have been taken by the Indian Railways (IR) with meticulous efforts in bringing electronic governance (Prabhu himself being available on Twitter, coming to the rescue of passengers in times of distress and instructing all the officials to be digitally present to address exigencies, whenever they arise).

The other measures include cleanliness, catering, resource mobilisation from LIC and Wor-ld Bank for viable projects, to reduce operating expenses by introducing innovative measures such as bidding for low cost power and direct purchase of diesel.

The minister did not play to the gallery by making announcements on new projects to satisfy various political constituencies, even though some of the projects that were announced two or three decades back remain non-starters. He seems to be believing in committing less and delivering more. He also does not believe in excessively taxing the passengers or freight transporters with fare hikes.

The rail budget echoed the above stated initiatives of the Railways. However, there are caveats with reference to maintaining the status quo in passenger and freight fares. The issue is not about increasing the fares of either passenger or fright fares but about the cross subsidisation where the profits accrued from freight traffic has been subsidising passenger travel. Why IR should not and cannot continue with the present cross subsidisation regime?

Theoretically speaking, it creates economic distortion. But, the practical implication is much more detrimental to the finances of IR even in the near future, let alone in the distant future. To begin with, the receipts from freight traffic for IR has not grown substantially between 2014-15 and 2016-17. The actual receipts from freight traffic in 2014-15 was Rs 10,5791.3 crore and the revised estimate for 2015-16 was Rs 1,11,852.7 crore, registering a growth of 5.73%.

Slowing growth

Even the target for 2016-17 has been moderately fixed at Rs 1,17,933 crore, lower than the revised estimate for 2015-16 after taking a cue from the study conducted for the Railways by the National Council of Applied Economic Research which stated that the freight transport would grow at 2.1% for IR in 2016-17 and attributed it to slowing down of industries such as cement, steel etc.

Projects supported by external budgetary resources such as loans from LIC would only to go to railway projects that are financially viable and not to new projects which cater to passenger train traffic. Passenger travel driven new projects would never pass the test of financial viability, given the extremely subsidised passenger fares.

Then comes the operating ratio issue. Without any additional revenue from freight traffic, no fare hike in passenger travel and huge additional expenditure of Rs 30,000 crore to be disbursed as per the Seventh Pay Commission recommendations, it is not known how Prabhu would be able to achieve an operating ratio of 92% in 2016-17. His expectations of reducing operating expenses are more reasonable than increasing the share of non-fare box revenues in the total revenues.

To tap all the untapped non-fare box potential such as stations, data, land and increase the share of non-fare box streams to 20% of the total revenues of IR, the organisation needs to develop railway stations with permanent structures on Public Private Partnership that would generate continued streamline of income for IR.

It is completely new to the organisational culture of IR to think and act on ideas that would generate revenues from non-fare box collections. Even to generate 10% of the total revenue from non-fare box collections in 2016-17, enormous imagination and entrepreneurial spirit is required along with the willingness to allow the private players to freely create infrastructure that would generate stream of revenues for IR from non-fare box collections.

Even Delhi and Mumbai Metro has been able to generate only about 17% and 10% of its total revenues from non-fare box collections respectively. Given all this, it is extremely difficult for the IR to increase its revenues by 10.1% in 2016-17 from the revised target for 2015-16.

With such a hand to mouth existence in operating ratio, is it possible to spend to improve the passenger travel experience? If the refurbished rail coaches – parked in the Delhi's Safdarjung station for passengers to witness what is in store for them in the immediate futu-re – are replaced with the dilapidated passenger coaches in the next two years for all the trains in India, it could be an awesome travel experience for the passengers. In the budget, the minister announced that Mahamana Express between Varanasi and Delhi would be introduced with refurbished coaches.

The refurbishment costs are Rs 16 lakh and Rs 22 lakh for a non AC and AC coach, respectively. To refurbish about 50,000 coaches that IR has, it would cost about Rs 10,000 crore. An additional development fee of 10% over the existing fare for the trains that are run with refurbished coaches would compensate the additional costs incurred in the refurbishment of coaches and passengers won’t mind paying such small extra amount to enjoy better travelling conditions.

(The author has a Doctorate in Public Systems from Indian Institute of Management, Ahmedabad. Views are personal)