Photo: Pradeep Gaur/Mint
Photo: Pradeep Gaur/Mint

Good set of reforms for the railways

The 2016-17 rail budget introduces reforms without inflicting much pain and arousing too much resistance

The immediate market reaction to rail stocks post the railway budget appears to be thumbs-down. This probably is a reflection of the failure of the railways ministry to achieve the rather ambitious targets that had been set out in the 2015-16 budget. It is also a reflection of the generally bearish outlook on the economy as a whole and the impact it is likely to have on the Indian Railways. The fact that budget fundamentals will worsen for the railways with the implementation of the 7th Pay Commission recommendations and the resultant increase in operating ratio to 92% would also have been factored in by the market. The credibility of the road ahead, as laid down by the minister, is called into question by the market and he will have to work hard to win back confidence.

Apart from the figures and the market reactions, I believe that the railway budget for 2016-17 does signal a departure from tradition. The budget speech is well prepared and does not make tedious reading. As in last year’s budget, it eschews the practice of populist sanctioning of new trains. It displays a robust optimism unaffected by the travails of the economy. It is also not just a set of intentions; it is backed by strategies that could work if effectively implemented. The inclusion of Annex 1, relating to implementation of budget announcements is a salutary innovation which, hopefully, would be adopted in other central and state budgets. It reveals also a deep understanding of the structure of the Indian Railways and quite clearly shows that the minister has studied his department well and interacted with people at many levels.

It is heartening to note that investment on railway infrastructure will go up to 1.21 trillion, that the minister is looking at non-traditional means of financing, including a heavy loan at reasonable rates from the Life Insurance Corporation and that he seeks to create a mechanism for innovative financing, which will also draft medium- and long-term corporate plans.

If the rail budget and the Economic Survey together can be construed to be a signal of probable increased public investment in the general budget, it would augur well for the economy and its immediate future, provided it is supported by facilitative financial and monetary policies by regulators.

The emphasis on consumer amenities and the particular care taken to address the problems of the less privileged, including women and children, senior citizens and “divyang", could, in the long run, make railway travel a more pleasurable experience for all. Cost cutting, through such means as long-term purchase of power, is indicative of practical thinking. There is focus on new and better trains, better services and good catering and greater private involvement to ensure a menu of services for passengers.

The initiative taken by the minister to form joint ventures with state governments is welcome and could be extended in future to such areas as creating industrial estates and parks in unused but suitable railway land.

The budget recognizes that a great deal of organizational change is needed. A National Railway Plan 2030 is envisaged. Such forward thinking is necessary to put successive annual budgets and shorter-term plans in a long-term perspective. An independent Rail Development Authority, which will act as a regulator, is proposed to be formed shortly. The National Academy of Indian Railways at Vadodara will become a university. A higher level R&D organization will be created and the Research Designs and Standards Organisation (RDSO) will have a more limited role.

Above all, the minister has recognized the need for organizational change within the Railway Board and in the manner of recruitment to the Group A railway services. The departmentalism and the silo mentality that has characterized railway administration for years on end will hopefully disappear and a more commercially oriented structure will be put in place. Combined with the proposed changes in the accounting mechanism, the higher delegation of functions and authority to lower levels and better monitoring, a strong base could be laid for result-oriented, dynamic performance at all levels.

A new organizational climate will certainly be an essential prerequisite for future growth. In the later stages of his speech, he has laid out a strategy for achievement of his core objectives through “Avataran", which sets out seven missions constituted within the Railway Board, reporting directly to the chairman. Organizational change, in my view, is a core objective, which should find a place in “Avataran" for achieving time-bound results.

I am not touching on the various revenue measures that he has proposed, both in respect of freight and passenger traffic as well as his innovative ideas on raising non-fare revenues. There could be criticism that some essential reforms, such as those relating to non-core activities of the Indian Railways, have been sidelined. There could also be criticism that the pace of reform is inadequate. Throughout the world, wherever reform has been attempted with success, it has been a slow process, except where circumstances have forced the government’s hands, as in Russia, following the collapse of the Soviet Union, and in India in 1991. I would consider the 2016-17 budget of the Indian Railways as a measured move towards reform without inflicting much pain and arousing too much resistance.

K.M. Chandrasekhar is vice-chairman of Kerala State Planning Board and was a member of the Bibek Debroy committee on restructuring Indian Railways.

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