The Hindu : Business : Goods tariff recast, a historic decision

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Monday, Feb 28, 2005

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Goods tariff recast, a historic decision

The proposed historic changes in goods tariff have a laudable objective of making it simple, rational and transparent, saysK. T. Jagannathan

MORE THAN for his decision to spare the common railway user of any rise in fares, the second budget of Lalu Prasad Yadav merits a closer reading for its myriad initiatives to beef up the freight earning capabilities of the Railways and its proposal to make "historic changes in the goods tariff.''

In his speech, Mr. Yadav said the Railways had regained some of its market share lost to the road sector thanks to a higher freight growth than the economy. He did not, however, say how much the Railways had recouped. According to the numbers he gave, the Railways had indeed done well on the freight front. This had enabled him to revise upward the current year's physical target for loading to 600 million tonnes from the budgeted 580 million tonnes and freight earnings to Rs. 30,450 crores from Rs. 28,745 crores.

The improved showing should be seen against the backdrop of general buoyancy in the economy. The Economic Survey 2004-05 has predicted a GDP growth of 6.9 per cent this year. Against the record additional loading of 43 million tonnes this year, the target for 2005-06, at 635 million tonnes, does, however, look conservative especially as the Railways hops to improve the turnaround time for wagons and speed up freight trains.

Given this scenario, it is not surprising that the budget has come out with a host of measures and incentives to lure freight customers. According to P. V. Vasudevan, a former Finance Commissioner of Railways, "The upward revision of loading target and the boost it has given to freight earnings together with a significant reversal in outstanding dues (expected recovery of Rs.150 crores out of over Rs.1600 crores) provides strength for the Railways' exercise for the next fiscal.''

Simple, rational tariff

The proposed `historic changes' in goods tariff have a laudable objective of making it simple, rational and transparent. Under the new proposal, goods tariff will have only 80 groups instead of the present 4,000 and odd. Each group under a main commodity head shall have a single uniform class for individual commodities in the group irrespective of their physical forms and shapes and conditions, whether raw or manufactured. The move may see tariff on some items go up and on some others go down. M. Ravindra, a former Chairman of Railway Board, however, does not approve of this recast announcement as part of the budget exercise. ``It is a piecemeal exercise,'' he says. He calls for a tariff panel (the last one was in 1992-93) to review the structure in its full form.

The problem area for the Railways, however, is its inability to contain the operating ratio. This ratio had moved into the 90s many years ago and has since stayed there. There is, of course, a marginal improvement to 91.6 per cent from 92.6 per cent in the current year's revised estimate. ``This means that less than ten per cent of the earnings is available for investment,'' points out Mr. Vasudevan.

Mr. Ravindra is convinced that the Railway Minister has again missed an opportunity to raise passenger fares. Passenger fare and monthly season ticket tariffs have not been touched for three years. "You can't hike the upper class fares what with competition coming from the airlines. But urban rail fares and monthly season tickets could have been hiked as they are highly subsidised," he argues. "Unless there is an effort to cover the cost of passenger train operations, resource generation for investment will continue to be poor,'' concurs Mr. Vasudevan. Not surprisingly, there is only a marginal rise of Rs. 851crores in the Plan outlay of Rs.15,359 crores for 2005-06. Nonetheless, the higher freight proposed for non-PDS foodgrains and pulses, which hitherto enjoyed an untargeted subsidy, is to be welcomed.

In a significant move, the Minister has also announced a special effort to sanction more route-wise throughput enhancement works to remove congestion on the Golden Quadrilateral and its diagonals so as to boost operational efficiency. Railway experts feel that this is overdue.

The works concerned should get top priority in the allotment of human, material and financial resources. "There is, however, no clear priority for road overbridges and underbridges which are taking on an alarming urgency from the safety as well operational angles,'' says Mr. Vasudevan. These projects, he reckons, suffer long delays from approval stage to final execution.

The increase in appropriation to the depreciation reserve fund and the development fund could not have come a day soon. Hopefully, this will impart a measure of realism to the budget since these programmes are in accordance with the priority.

The Minister has also touched upon the capital restructuring initiatives within the Railways in the wake of the ongoing accounting reforms. The dividend obligation has been cut to 6.5 per cent from seven per cent, helping the Railways in a big way.

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