By Vidya Mishra
The Railway Budget 2011-12, presented by the Union Minister of Railways Kumari Mamata Banerjee in Parliament on February 25, 2011, deserves all the appreciation for cleverly packaging the ‘Rail Budget (2011-12)’. On face of it, it prudently balances the 2010-11 accounts with a projected operating ratio of 92.1%, notwithstanding unanticipated increase in expenses of Rs 5,700 crore for rise in fuel rates and higher wage bill. It is achieved essentially on “higher yield per net tonne kilometre (NTKM) growth rate for Indian Railways — a measure of combined increase in goods loading and distance moved”. In spite of the deficit of as much as 20 million tonnes of freight, it claims to have achieved the budget level of earnings. Again, the surplus shown at Rs 4,105 crores would evidently leave little for the Capital Fund and Development Fund. The same holds good for the excess projected at Rs 5,258 crores for fiscal year (2011-12), which, no doubt, is but a paltry amount for essential capital expenditure as well as improvement and augmentation of facilities besides compromising with aspects related to ‘Rail Safety’. The operating ratio is expected to improve only marginally to 91.1% in 2011-12. That depends on gross traffic receipts rising by 12% — with passenger earnings growing by 16% and freight by 9.8% during the year — and limiting the expenditure increase to 10.6%. The railway minister would need to ask herself how Indian Railways (IR) can accomplish the “imperative” of faster than 8-9 % growth with no strategy spelt out to exponentially enhance capacity on its saturated corridors and at terminals.
The question of increasing the ‘freight carrying capacity’ of Indian Railways have been ignored at the cost of introducing host of Trains to one region? Freight trains which trail fast running passenger trains get less and less room to run. More and more passenger trains only exacerbate capacity constraints on the already clogged inter-megacity rail corridors as well as the terminal and maintenance infrastructure. Infrastructure is indeed the Achilles’ heel of the economy. The grave deficiencies can be redressed not merely by policy platitudes, grandiose declarations of intent, daily flagging off new passenger trains or laying foundation stones for ambitious projects. It is no secret that IR has been teetering and faltering with competition outside and complacency within. IR’s share for freight, where substantial last-mile road transport is required, is insignificant. This is because of uncertainty in quality of service (e.g., time taken to deliver), the lack of end-to-end service provisioning (Third-Party Logistics i.e. 3 PL and Forth Party Logistics i.e. 4PL) and high freight tariffs. A sardonic myth constantly reiterated for providing ‘inclusive growth’ by executing ‘socially desirable projects’ for backward areas being brought into the mainstream through hugely unremunerative railway lines and services only saddles the system with huge avoidable liability.
In the present Railway Budget, over a third of the annual plan will be financed through borrowings including tax-free bonds. The Railways must augment future earnings to service these loans. Ideally, Hon’ble Railway Minister should have directed investments to strengthen railway infrastructure to carry more freight. Unfortunately, the bulk of the increased plan allocation has gone not to track renewal, doubling of key routes and electrification, but to new lines. Unlike freight, passenger revenues have been robust with more passengers travelling over longer distances. However, the practice of freight and upper class passengers subsiding lower class passengers should end. And, keeping the freight rates unchanged alone won’t fetch the Railways a larger share in goods movement. Freight volumes have actually come down at a time when India is growing at 8.6%. Yet, there is no meaningful effort to involve the private sector to augment investment in the Railways and increase freight volume and revenue.
The present budgetary support seeks to borrow Rs.20, 000 crores from the capital market as part of its total plan outlay of Rs.57, 630 crores compared to Rs. 41,426 crores in 2010-11. The 2011-12-plan size is undoubtedly the highest ever so far. Obviously, the Government has not infused additional budgetary support, leaving the railways to depend on the debt market mechanism. Through this mechanism, the Railways has added rolling stock assets like locomotives, coaches and wagons valued at over Rs.60, 163 crores till March 31, 2010. At this rate, Indian Railways would be drowned under debt. This is borne out by the findings of ‘A.C.Poulus Committee Report’ on Railway Finances as early as in 1994, during Narasimha Rao Government. A marginal redeeming factor is that the cost of market borrowings has come down from 15 per cent in 1996-97 to 8.21 percent in 2009-10.
Hon’ble Minister for Railways said last year, ‘we cannot and should not have a myopic view of viability … another … consideration was social responsibility’. So, apart from the usual sops for West Bengal like a coach factory at Singur and a software centre in Darjeeling, there are special projects for the Northeast -all state capitals are to be connected by rail in 7 years, a diesel loco centre is to be set up in Manipur, and an industrial park in Bongaigaon. Around 10,000 homes are to be provided for those living near railway tracks, a wagon unit is to be set up in Kerala (along with 12 new trains), another in Karnataka. In fact, it is disheartening to see that Mumbai, which contributes maximum to the country’s growth, is treated in a biased way. The trains running in Delhi and West Bengal offer better services…while Mumbai seems to lag behind.
Indian Railways as against just 10,677 km of new lines since Independence, the Railway Minister had announced last year a target of 1,000 km a year; however, the railways fell short by 300 km but even so the targets for gauge conversion, doubling and electrification — all ramped up last year — have been met. Set against this sort of commitment, I strongly believe the Railway Minister’s ambitious plans are eminently doable? Despite its vast network, parts of India are still uncovered and, while they may elicit some scepticism, her plans to link all the north-eastern States in seven years with a carefully, if clumsily-worded, “non-lapsable fund” should be lauded. The Indian Railway Finance Corporation, in addition to the Rs 9,000 crores it raises for leasing rolling stock, will now issue tax-free bonds for Rs 10,000 crores for “select enhancement work”. Here lies a challenge: for a government concerned about its fiscal deficit, bonds of this type defeat the purpose, unless the Railways show better results in the coming years. It is one thing to note proudly that gross receipts are inching towards Rs 1 lakh crores, quite another that the operating ratio, the money spent to earn some, has zoomed. Perspective is also lacking in the stress on expansion of suburban networks in Mumbai and Kolkata, when it might have been appropriate to her Vision 2020 to consider similar services for Tier two cities that are rapidly expanding. The steady climb in the operating ratio; five years ago it was around 76 per cent; now it 91 per cent and the Ministry of Railways should seriously think on it.
Despite highest ever plan size, there has been depletion by over Rs.1900 crores in the Depreciation Reserve Fund, which finances renewal and maintenance of assets and Capita Reserve Fund that triggers infrastructural growth by over two-third, falling to Rs. 5032.06 crores. This together with reduction in freight target by 20 million tonnes in 2010-11 as also in the performance of passenger traffic in the face of 8-9 per cent growth rate of national economy sounds debilitating signals for the health of rail finances.
dded o the above, projected targets of 993 million tonnes of freight and 6.9 per cent growth in passenger traffic with its most likely shortfall on the present parameters of economy in 2011-12 with no mention of funding of the much touted Dedicated Freight Corridor, announced with big fanfare in 2005 to link the National Capital in the west with Mumbai and in the east with Kolkata, within four years, to meet the challenges of increasing demands of ever growing economy, with no clarity on resource mobilization, building new coaches and locomotives factories, continuing dependence of passenger services on cross-subsidization from freight earnings by not increasing passenger fares for eight years in a row, and operating ratio zooming to 94.7 per cent in 2009-10 despite its projection at 92.3 per cent, continuing high freight rates constantly making the railways to lose freight traffic to other modes of transportation, suspending private participation (investment) in freight traffic modules of the Container Corporation of India, licences for which were given during Lalu Prasad regime, are matters of worries for the railways as these factors would surely affect its resource mobilization. At the current pricing, the estimated cost of Dedicated Freight Corridor has gone up to Rs.77,000 crores compared to Rs.30,000 crores in 2005. This most important project is still mired in the problem of land acquisition and line alignments.
Meanwhile, not increasing passenger tariffs and rationalizing freight rates continue to take a heavy toll of railway finances, given high inflationary trends and increase in fuel costs especially the High Speed Diesel, of which the railways are the largest guzzlers. This boils down to one and only factors that the status of Indian Railways as a commercial entity is in jeopardy. At the current rate, the railways cannot survive as a commercial entity in the emerging globalised market economy unless the Government of India maintains a balance between the social responsibility and financial viability of this behemoth. That requires a massive infusion of additional budgetary support by the General Exchequer to the railways to remain financially sustainable.
Mamata’s massive populist measures with a large number of new trains and a slew of new projects, especially the later ones mostly in her state of West Bengal, may not take off given the long gestation period of their fructification and the on- going process of freezing such capital intensive projects by successive Railway Ministers putting them in the shelf of throw-forward pending projects by keeping them alive with meager allocation of sums in the ‘Railway Pink Book’. Such modus operandi in the manipulation of railway infrastructural projects and its finances by the Railway Ministers will never allow railways to come out unscathed on business model or even on socially responsive modules. In fact, the railways will continue to be sandwiched between financial viability and social responsibility.
Massive targets of 1300 kilometres new lines, 867 kilometres of doubling and 1017 kilometres of gauge conversion in 2011-12 sound fantastic when 2010-11 targets in these areas have not been met. For example, there has been shortfall of more than 300 kilometres in the target for new lines in 2010-11. In addition, average annual accretion of new lines has been 180 kilometres since Independence except during Lalu Prasad,’s tenancy of railways when average new lines built were 220 kilometes yearly. At this rate, Mamata Banerjee’s accomplishments of financial targets of over Rss.1,06, 239 crores in 2011-12 and physical targets of various projects, announced by her, and the continuing projects, remain a matter of grave concern, given the fact that 94 per cent of total earnings come from freight and passenger traffic.
Lastly, a word of caution for the Ministry of Railways that there is an urgent need to streamline the apparatus, shed the flab, make it nimble and trim, and drastically prune the number of yards, sheds, depots, offices and activities. There is little rationale for as many as half-a- million IR manpower being unskilled in the face of state-of the-art equipment and technologies invested and installed at huge cost. A clear imperative is that IR generates substantial investible surpluses through dynamic pricing, increased volumes and lower unit cost operations. Long-range planning deals not with future decisions, but with the future of present decisions. Hon’ble Railway Minister will do well to realize that keeping promises is the real test, not just making new promises: and I would therefore request that hon’ble Minister for Railways should seriously ponder this time how the “several business-oriented” policy initiatives which she catalogued have elicited little effective response?