The Hindu : Business : Will the Railway Budget address chronic problems?

Online edition of India's National Newspaper
Tuesday, Jul 06, 2004

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Business

Will the Railway Budget address chronic problems?

By C. R. L. Narasimhan

CHENNAI, JULY 5. The Railway Budget to be presented on July 6 will be significant as much for its timing as for the steps it will propose to address its chronic problems. The Indian Railways' claim to uniqueness also arises from the fact that it is has been the most discussed government organisation. The Budget documents provide a wealth of data on the operational issues as well as on the finances. Besides, several white papers have been issued at frequent intervals.

The Railway Minister, Laloo Prasad Yadav's presentation on Tuesday will be watched apart from the usual reasons such -as passenger fare revisions, also for its tone and substance aimed at addressing the well documented maladies of the Railways.

Additionally, of course, the Railway Budget may be expected to foretell the likely direction of the Union Budget, at least in the matter of economic reform, which for the Railways has to begin with an inculcation of fiscal prudence. After all, the main concern of the Railways is financial. The operating ratio — the amount spent in earning Rs. 100 — which was in reasonable shape between 1951 and 1966 (it was in the 74.7 and 84.4 range) deteriorated later. The Railway's subsequent performance has been uneven but controlling costs will be a key item in any financial strategy. It has been estimated that for a six year period ended March 2004, on an average, the rate of growth of revenues at 8.7 per cent has lagged behind the rate of growth in costs (9.65 per cent). That in turn has had adverse consequences on internal generation.

Low level of employee productivity, implying a substantial over staffing, is the main cause for escalating costs. Transport output in terms of passenger and freight tonne kilometre per employee in the Railways is well below those obtained in other major railway systems such as China. Staff costs have also gone up because of the implementation of the Fifth Pay Commission.

Market borrowing that the Railways has been forced to resort to since 1986 in the absence of adequate budgetary support has sometimes been used unproductively to fund replacements and not new assets.

A chronic problem on the revenue side has been the huge amount of cross subsidies. Very high freight charges (especially on coal, cement, steel and petroleum products) are subsidising passenger fares, upper class fares, sleeper class and second class fares. Passenger fares costs are just above a fourth of freight charges on an average.

It is unlikely, if ever, the Railways will especially under the stewardship of a Minister with Mr. Yadav's predilections disturb this age-old tilt in favour of the `poor.'

However, it is well documented that competition from the road sector has intensified. The Railways, which is a bulk transporter of commodities, has enjoyed patronage from other public sector units. Yet, the end users, for in stance NTPC now going public, may not be able to tolerate the high railway tariff (on coal).

Compounded all these has been the organisational structure, which has to undertake a dual role — a social organisation and a commercial service simultaneously. Despite having some of the finest talent in the country, the Railways has not been able to fulfil its mission, a provider of vital transport at reasonable costs. Social tasks are important for this natural monopoly but there is no system for compensating the Railways for these.

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