Illustration: Jayachandran/Mint
Illustration: Jayachandran/Mint

Rail Budget 2016: Some reformist moves, but worrying math

Only competition and accountability can put Indian Railways back on track

One of India’s most famous storytellers, Ruskin Bond, once said: “If you sit down on a railway platform for an hour or two, you’ll have a story." While Bond’s stories of the railways may be delightful, the same cannot be said about the actual story of Indian Railways. One gets to hear the sorry tale every year—around the time of the presentation of the annual rail budget. The railway ministers, however, have become smarter and they narrate the better picture, leaving the sorry tale to the annexures.

An analysis of the budget should be based squarely on the question of what a budget should be. While provision of baby foods and hot milk on stations and conversion of station walls into murals are indeed progressive steps—both are part of railway minister Suresh Prabhu’s budget speech—their significance in the budget speech is nonetheless questionable. The budget speech should be about the current finances of the railways and the future vision. It should be short, crisp and to the point.

While Prabhu indeed laid out a vision and talked about the financial problems, more time could have been allotted to those important areas and less to sundry announcements. Gross traffic receipts fell by 8.6% from the budgeted estimates. Freight earnings—the breadwinner of Indian Railways—declined by almost 8% “on account of low demand from the core sector". The budgeted estimates for the next year bank on “a healthier growth in the core sector of economy" and hence can be equally charged with over-optimism.

The gross budgetary support (GBS) was increased with much fanfare last year. The increase of almost 10,000 crore—it was said—was supposed to be an indicator of massive public investment in railways. On cue, last year’s Economic Survey said: “The present government can now do for the neglected railways sector what the previous NDA government did for rural roads." Come this year, the GBS did not find a mention in Prabhu’s speech. The reason was simple: an under-utilization of 16,000 crore. As a result, the budgetary support this year has been slashed to 34,220 crore from 40,000 crore last year. The deficit in expenditure in this instance was compensated by increased investments through partnerships.

The operating ratio target of 88.5% set last year remains unachieved; the revised estimates come to a figure of around 90%. The lower the operating ratio—the ratio of working expenses to gross earnings—the better it is as it leaves more resources for capital expenditure. With the implementation of the 7th Pay Commission recommendations, the revenue expenditure will shoot up considerably and Prabhu has been realistic in keeping the operating ratio target at a higher level of 92% for the next fiscal.

To be sure, Prabhu’s speech did propose some long-term fixes for railway finances and services. His objective of transforming Indian Railways into a first-rate service provider while growing into a customer-friendly organization is indeed commendable. He was on target in outlining three pillars of strategy: a) new revenues (monetizing all possible sources of revenue); b) new norms (incorporating best international practices including, most importantly, a zero-based budgeting approach); and c) new structures (revisiting all process and organizational structures). Prabhu also wants to address the worrying decline in modal share of freight traffic by expanding the freight basket, rationalizing the tariff structure and building terminal capacity.

To add to such reformist measures, a draft bill will soon be ready to create the much-needed regulatory structure. Prabhu also dealt with the issue of reorganization of the railway board. However, what was missing from Prabhu’s budget speech was how all these measures add up to a single narrative of greater private participation in all sorts of activities ranging from manufacturing to operation of trains. After all, it’s competition and accountability—and not some band-aid applied by the government of the day—that will ease financial distress at Indian Railways.

Prabhu avoided talking about tariffs beyond a statement of intent to review the current tariff policy. A competitive tariff structure for freight trains is urgently required to arrest the slide of traffic to roads. This should go hand in hand with the steady elimination of cross-subsidy from freight to passenger segment of the business. An appropriate road map to achieve this could have been laid out. That would have made a perfect rail budget statement for 2016-17.

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