The Hindu : Business : Railway Budget: missed opportunities

Online edition of India's National Newspaper
Monday, Jul 12, 2004

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Railway Budget: missed opportunities

The Railways are chronically short of resources to achieve worthwhile objectives. The latest budget merely allows the position to continue.

THE STOCK market responded to it enthusiastically, while the travelling public greeted it with relief. Political parties have their own way of looking at it. As an instrument of financial policy, however, the Railway Budget 2004-05 offers little or nothing towards restoring the nation's greatest public undertaking to a sound state of financial health. Instead it seeks to pre-empt funds of the Central Government that could go to mitigate the lot of those millions of common folk for whom the happenings on the bourses or the attractions of the railway coach are of no interest or consequence.

The Railways are chronically short of resources to achieve worthwhile objectives such as modernisation, safety and asset building for growth of traffic but their dependence on the general finances and market borrowing has become even more pronounced in the years that followed the flight of traffic to the road and the Fifth Central Pay Commission's recommendations. The latest budget merely allows the position to continue.

It is true that freight rates are still passing through a phase of essential correction. Any tinkering with that process will be detrimental to the recovery, such as it is, of the railways' share of freight. Keeping them stable, after the over-exploitation in the last decade, is indeed wise. But the case of passenger fares is entirely different, they have never kept pace with the costs, being given inadequate raises at irregular intervals even as service to the travelling public is constantly upgraded in various ways. The mounting losses, currently of the order of Rs. 5,000 crores, have seriously undermined resource capacity over the years. In fact enlightened passengers would rather pay more for better conditions of travel like fast and punctual services, accommodation without hassles and above all safety, than look for just cheap fares that constrain the Railways' ability to effect improvements. But such considerations seem to have been overlooked in the decision to miss the opportunity once again.

A positive feature of the budget is the clearance of deferred dividend liability to the tune of Rs 300 crores as well as full payment of current dividend amounting to Rs 3,305 crores. This demonstrates the Railway Ministry's anxiety to be seen as fulfilling that basic fiscal commitment, particularly important when funds have to be borrowed from the market for creation of assets.

Some minor improvements in the Operating Ratio have been mentioned — 92.1 per cent last year as against 94.1 per cent budgeted, and 92.6 per cent in this year's budget instead of 93 per cent in the interim budget.

Conservative freight targets

About the Railways' approach to their traffic targets, it was pointed out in these columns that they should have been fixed at achievable levels, not unduly lower. Further, when freight charges are attractive, stiff targets will be justified. For the year 2003-04, the budget target was 540 million tonnes, revised to 550 million in January 2004 and the final loading 557.39 million, up by as much as 38.65 million tonnes over the previous year. Yet the current year's target was initially shown as 570 million, now changed to 580 million, leaving scope for further revision.

It is to be expected that with freight rates remaining stable and attractive and additional capacity generated in the system, the Railways can surely get better results. Incidentally, while the tonnage figures are useful for day-to-day monitoring, the earnings are directly related to the transport output expressed in billion tonne-kilometres which take into account the lead of traffic as well; targets and monitoring must relate to this also.

The Annual Plan Expenditure, budgeted at Rs. 14,498 crores, is higher than last year's actuals of Rs. 13,311 crores by about 9 per cent. A significant component of this increase is market borrowing, up by Rs. 450 crores or 15 per cent over last year's Rs. 3,000 crores, involving an additional burden of lease charges to be paid out of revenues. This is an area of concern. Borrowed funds, besides financing new acquisitions of rolling stock, are also utilised to cover the shortfall in the Depreciation Reserve Fund for renewal of such assets. That takes us to another serious issue — "Premature renewal of assets: Incidence of rails being replaced earlier than due is about 30 per cent, and the figure for coaches is around 25. While premature replacements cannot be totally eliminated the need for reduction by ensuring maintainance standards and improved quality of production becomes apparent.'' (Former Chairman, Railway Board, M. Ravindra, in The Hindu Survey of Indian Industry 2004)

Barely 20 per cent of the Plan expenditure is met by internally generated resources of the Railways. The rest is largely from the general Exchequer in different forms and partly from market borrowing (24 per cent). This is a dangerously low level of self-support.

Handsome allocations have been made for new lines and gauge conversions (almost all of them loss-making) and doubling projects, with enhanced physical targets. But that leaves, despite some increased outlay, 62 urgent identified `Throughput Enhancement Works' to be completed three years from now.

It is not clear whether projects that will offer alternatives to congested routes are treated with the priority they deserve. It is also doubtful that capacity bottlenecks on the Golden Quadrilateral can be tackled quickly enough by the Rail Vikas Nigam Limited without full funding by the Railways on priority, but that will not be forthcoming. The improvement of Quadrilateral roads is going on apace and if the Railways' traffic is lost to the road that may never come back.

The budget mentions about economy in revenue expenses. As long as maintenance of assets is not affected thereby, this is all right. But economy in project expenditure is equally relevant and urgent. Particularly in the case of projects not expected to give adequate returns, the scale of facilities to be created and standards of construction to be followed should be the most economical, indeed austere. That should, in fact, be the strategy to achieve the maximum of `connectivity,' their primary objective and raison d'etre, in a relatively short time when too many projects compete for resources.

New measures for safety such as train protection and warning system and anti-collision device, have been announced. Track and bridge rehabilitation, protection at level crossings and other types of safety works seem to have made good progress. Above all (as the interim budget speech mentioned) the `Workshop on Safety' held last year has made a positive impact on the most worrying aspect — human failure as the dominant cause of accidents. All this is a good sign.

It would be fit and proper for the Railways to publicise periodically the status of accidents, not in wholesale statistical terms like the number per million train kilometres, but with an analysis of their number, showing those types of accidents that cause injuries and fatalities, with causes therefor.

Accurate reporting within the organisation is a sine qua non for genuine progress in this vital area.

Accent on

capacity utilisation

Capacity bottlenecks are often cited to justify new projects, the inability to improve throughput and so on. Available capacity on the `busy' corridors is built upon multiple track, electric traction, advanced signalling, high power locomotives and a wagon fleet that is now largely free of weaknesses like four-wheelers or other vulnerable types. It is their optimal utilisation which is the key. The approach and the skills in this field are apparently not uniform.

Corporate initiatives such as reducing the speed differential between passenger and freight trains and time-tabling of freight trains (reportedly in vogue decades ago) have been heard of but never witnessed in practice even on an experimental basis or mentioned in a policy document like the budget speech.

The formulation of the new time-table may provide an opportunity in this respect as well as to rationalise the running and timing of passenger trains. The running time of certain trains is anomalously long, like: for instance, the Chennai-Mumbai Mail and the Chennai-Howrah Mail. They have not changed in five decades and may well be run on a par with other trains between these centres. Excessive number of stoppages of prestigious trains like the Grand Trunk Express must be reviewed, in an overall bid to reduce track occupation by the existing trains.

The Report (July 2001) of the Railway Expert Group headed by Rakesh Mohan, based on wide-ranging studies, made several recommendations to transform Indian Railways into a strong, modern system to participate actively and gainfully in the accelerated growth of the economy.

The serious threat to Railway finances from a dwindling market share and other pressures and weaknesses was their starting point. That threat will not go away. It will be in the fitness of things that the Railways decide on their approach pragmatically and make it known.

For an even more ambitious goal has been declared — ".....to ensure that this system becomes one of the best Railway systems in the world.......''

P. V. Vasudevan (Former Financial Commissioner, Indian Railways)

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