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A professional Railway Budget

A professional Railway Budget

Theory of constraints applied is how one could summarize the railway budget presented in Parliament by Dinesh Trivedi. It is, perhaps, the most professional and politically well-crafted railway budget speech in Parliament as far as memory can go.

Railway minister Trivedi carefully avoided the slippery path of stating the percentage hike in fares or reading new lines and trains in detail. This is the part of the railway budget that invites the most criticism from the opposition benches. Importantly, it was politically suited to his mentor when he kept referring to the Centre for restraining funds to the railways and asked for the indulgence of members for seeking innovative measures to fund various projects.

The theory of constraints states that each constraint that can lead to higher throughput in a flowing supply chain must be alleviated, sequentially starting with the most severe one to derive greater flow (read originating traffic for Indian Railways) and thus greater revenue out of the network. Drawing from the theory, the minister states that he would focus on those 19,000km of the 64,000km that generate 80% of originating traffic. These are the lines where a minor constraint alleviation can lead to significant gain in passenger and freight revenue. This is a welcome departure from the policies of any of the previous railway ministers including Trivedi’s mentor—West Bengal chief minister Mamata Banerjee of the Trinamool Congress party, who, as the previous railway minister, mostly focused on socially desirable lines—a euphemism for money-losing ones. In addition to this, Trivedi has focused on throughput by stressing on the quality of rails that can carry higher axle load—25 tonnes. Remember the last so-called Lalu miracle was funded by increased freight revenue which was achieved by raising the axle load of wagons from 18 tonnes to 23 tonnes. But that was the most they could have gone without bringing significant quality improvements in the rails themselves. The minister has truly bitten the bullet now by going for the next level of improvement.

The repeated stress on the last mile of connectivity that can ensure seamless door-to-door connectivity for its customers is another noteworthy feature. This has been a major turn off for potential bulk customers. Truly adhering to the theory of constraints, Trivedi then moves to alleviate the next constraint to higher throughput—managing track sections as well as the signalling and telecom infrastructure. An all time high, long-term investment of 39,110 crore has been promised for the same. Outside India, such automation has increased throughput by 25%, a direct revenue gain. Similarly, 4,410 crore has been allocated to coaching, another source of enhanced carrying capacity. The minister seems to have worked on every constraint. A planned investment of 5.6 trillion could not have been funded without a significant hike in passenger and freight tariff, and that was done in two steps—one before the budget and the other one in the course of the budget, but rather discreetly.

The minister pointed to another factor that would contribute to passenger revenue growth—running more trains and higher occupancy. Again decoding what the minister suggests, the utilization of rolling stock would be optimized to enhance capacity and the enhanced capacity would be utilized by focusing on occupancy. To that extent, he stressed on the alternate train accommodation system that will not lose out on the waitlisted passengers and use them to increase the occupancy of other trains. The minister’s target to enhance passenger revenue from around 28,000 crore in the current fiscal to around 36,000 crore in the next fiscal should leave no one in doubt that most of it will come through enhanced fares though and not from occupancy. Back-of-the-envelope calculations show that of the planned increase of almost 25% in passenger revenue, about 17% would come from the hike in fares and only the remaining from higher occupancy. The rounding off of fares to next higher 5 is a not so nice method of collecting petty cash from the public. The message should not be lost.

Similarly, for freight fares the target for the year 2012-13 is 89,339 crore, a growth of 30.2% over the current revised target. Again, back of the envelope calculations suggest approximately 20% would come from the tariff hike effected before the budget, and the rest from the last mile connectivity the railway minister stressed so often in Parliament. The minister could have done better by enhancing the annual freight target, for which he has set a guarded number of 1,025 million tonnes, which is a mere 5.7% more than the target for the current fiscal. This displays a lack of faith in the marketing ability of Indian Railways. The appointment of a Railway Board member for public-private partnerships and marketing is a clear admission that the railways lacks consumer focus and resource mobilization. However, it’s the minister’s intent of bringing the operating ratio under control and smashing all previous records that takes the cake. By the end of the next Five-Year Plan, the minister plans to take the operating ratio below the previous low of 74.7%—it currently stands at 95%. May God bless him and his successor with near-zero wage hikes by pay commissions. Let’s not forget—the party that former railway minister Lalu Yadav started was disrupted by the Sixth Pay Commission, which wiped off any regenerative capacity of the railways. This is what you call ambition!

Jai Mrug is a Mumbai-based operations researcher.

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