Business Standard / New Delhi Feb 07, 2012, 00:10 IST
India’s railway network should be one of its greatest strengths. It has considerable penetration, an adequate land bank and an independent cadre of managers. In the creation of a single market for goods, one of the most growth-enhancing measures possible, it is a crucial tool. Yet Indian Railways (IR) has become a casualty of populist politics, and the numbers being scrutinised in advance of the Railway Budget for 2012-13 should demonstrate how badly that has served the network. Over a third of the 2011-12 Budget outlay is serviced through a borrowing liability — of Rs 20,594 crore. Fund balances have plunged for years now, which has impacted the capital fund in particular; from over Rs 10,000 crore in 2007-08 to a tenth of that. Capital is not being utilised to create new projects, either, bringing the essential upgrade of the network to a halt. There is a huge backlog of (more than 300) pending projects, such as the creation of new lines, and gauge conversion on existing lines — and the longer a project is pending, the more its cost escalates. The estimated cost of these projects is now comfortably above Rs 1 lakh crore.
The railway ministry, which is headed by a ministerial nominee of the Trinamool Congress, has responded to this crisis in the manner the Trinamool Congress knows best: by asking the finance ministry for a handout. It asked for Rs 10,000 crore and waiver of a Rs 1,200-crore dividend, but is getting only Rs 3,000 crore — as a loan at 8.5 per cent interest. Yet that in itself is a remarkable, and worrying, turnaround. Never in the two decades of liberalisation has IR asked for a loan. True, the industrial slowdown has hit IR hard, with internal resource mobilisation lower than the Budget target by Rs 1,298 crore. Meanwhile, fuel prices have soared, and post-Pay Commission salaries have, too. But the problem is not caused by a single bad year. It is the product of years of political mismanagement and misplaced priorities.
Passenger traffic, especially suburban commuter traffic, continues to be massively cross-subsidised by freight carriage. Yet freight carriage is not modernised. It took IR two decades to implement the Gujral formula from the 1980s, which was supposed to increase freight load performance. That brought some temporary relief to the balance sheets, but could not permanently paper over the substantial problems IR faces. Consider this: the railway network for a fast-growing, 21st-century economy continues to run its trains at an average speed of 25 kilometres an hour. That is a sign of both capacity underutilisation and mismanagement. There is no single solution to the mess that IR is in. However, clear-sighted efforts must be made towards rationalisation and prioritisation. Economically unviable but “socially useful” projects – museums, colleges and so on – must be dropped. The suburban rail system must be reformed and its goods-carrying capacity enhanced with expeditious commissioning of the much-hyped dedicated freight corridor project. But, most of all, a reformist – not populist – mindset must take hold of IR’s top management, and its political masters.
One hesitates to recommend that the Rail Land Development Authority should aggressively monetise its land bank since, as with so much else in the domain of public finance, that will merely serve to put off the hard decisions. IR has the potential to be a navratna on par with ONGC.
If the UPA government really desires to put the Indian Railways (IR) back on track, it should insist that the new Railways minister should abandon the populist policies and make sincere efforts to put the IR back on track. To achieve this objective, I suggest that following steps be taken: (1) Make the Railway Board members and General managers of all Railway Zones accountable for their decisions, but give them the freedom to take decisions without interference from the Ministry or the Minister.(2)Take immediate steps to increase fares, particularly passenger fares, to ensure that the IR gets some extra money to improve its finances. (3)Modernize the management of IR with the help of management exerts. (4) Prepare and implement a five year plan to convert IR into Indian Railways Corporation (IRC), so that IR can be run as commercial undertaking and IRC can raise money from capital market to fund expansion plans etc.
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