Originally Published 2012-03-15 00:00:00 Published on Mar 15, 2012
For a person who knows his business economics well, the Railway Minister obviously realises that he will need money to make that happen. That is why his speech contained so many references to the need for budgetary support from the government.
Populism will run out of steam
In 1858 as Bahadur Shah Zafar began his long journey to exile in Rangoon, not very far out of Delhi he saw the railway advancing to connect Delhi to the British Indian capital in Calcutta. The railway had been introduced to India just five years before. Some 90 years later, a railway system of about 53,000 kilometres of track knitted India together like never before. It also changed India by speeding up links between the hinterland and the coastal cities, and moved Indian men and material to all parts of the world. Thus, the railways have a better claim than the British-created bureaucracy to be called India’s steel frame. The Indian Railways run the third largest railroad network spread over some 64,000 km, with 12,000 passenger and 7,000 freight trains each day from as many as 7,500 stations to carry almost 25 million travellers and 2.65 million tonnes of freight or 36 per cent of the total hauled across the country daily. It is also the world’s largest employer with 1.36 million staff on its rolls.


Despite its size and spread, IR’s gross revenue accounts for less than 1.5 per cent of India’s GDP. On the other hand the total logistics cost in the country accounts for almost 13 per cent of GDP and compares badly with the U.S. and Europe where logistics account for only about 10 per cent of GDP. Costly logistics imposes a burden on India’s industrial productivity and competitiveness. As if this was not enough of a burden, passenger traffic imposes a cost on the IR, and the nation in turn. In 2008 the earnings per train passenger kilometre was Rs.412.22, while the cost of hauling was Rs.550.97, clearly suggesting that freight revenue hugely cross-subsidises passenger traffic. This is a gap of over Rs.150 per passenger kilometre and it is very clear that if cross-subsidisation has to decline in some meaningful measure, passenger fares have to go up by some commensurate measure. The Union Railway Minister has in real terms not addressed this at all. He proposed a fare increase that ranges from 2 paise per kilometre for suburban travel, 3 paise for mail and express trains, 5 paise for sleeper coaches and 15 and 30 paise for AC chair car and Ist class. Even this tokenism has apparently displeased his mercurial party chief in Kolkata, and if reports are to be believed, Dinesh Trivedi is contemplating resignation.

But this does not mean that Mr. Trivedi has not grappled with the problem of tapering revenues. He has chosen the well-beaten path of making the revenue changes before the budget announcement to somewhat lessen the sting. On March 6 an almost across the board freight increase of nearly 20 per cent was announced. Only iron ore was exempt from this increase.

It makes one wonder why, since the cost structure of iron is so skewed in favour of the mining companies. On this front, Mr. Trivedi’s ploy seems to have worked well, so far. His political master has, so far, not made known any displeasure over this.

But Mr. Trivedi, who owns a successful travel business in real life, is not without ambitions for the Indian Railways. He announced that IR would invest Rs.7.35 lakh crore during the 12th Five Year Plan period (2012-17), against Rs.1.92 lakh crore in the current one. He hopes that in five years from now IR will almost double its contribution to India’s GDP, taking it well past two per cent. Trivedi said the outlay of Rs.60,100 crore proposed for 2012-13 will be the highest ever and added that the network will require Rs.14 lakh crore over the next 10 years for modernisation. He cannot be faulted for this vision. How can he, when the vision was cast in cold type by his predecessor, Ms Mamata Banerjee, in her 2020 vision document for the Indian Railways released during her tenure?

For a person who knows his business economics well, Mr. Trivedi obviously realises that he will need money to make that happen. That is why his speech contained so many references to need for budgetary support from the government. Despite the March 6 increase in freight prices, the deficit for the railways in 2012-13 could be as high as Rs.2,162 crore, unless it goes for another round of freight "rationalisation." Passenger fare "rationalisation" after today’s inner party brouhaha, seems out of the question.

Carry more, carry faster

The composite index of all the inputs in the railways (including fuel oil and staff cost) has shot up by around 100 per cent, but the increase in freight has been only 35-40 per cent in the past eight years. Ever so, there is a limit to how far IR can push up freight charges. The recent freight increases have begun eating into its competiveness, particularly for the middle distances. Railway cargo still moves at a snail’s pace of about 25 kmph. This adds to the reduced competitiveness. IR is also faced with a severe shortage of rolling stock. This calls for huge capital investments, for which the Minister is clearly unable to provide. As it is, bulk goods like petroleum, oil and lubricants, and iron ore are increasingly shifting to pipelines and road transport as time is now a major determining factor. Clearly, IR needs to carry more and carry faster. The strengthening of track to carry heavier loads at faster speeds cannot be postponed for much longer. The railways have not had a passenger fare increase for nine years, and what was announced today is mere scratching on the surface.

What’s left

The consequences of this are obvious in the budget announced yesterday. After taking into account the working expenses of Rs.87,560 crore, an appropriation to the pension fund of Rs.18,144 crore and a dividend payment of Rs.7,858 crore, the internal generation left after spending on non-plan expenditure is around Rs.5,342 crore.

A payment of Rs.7,504 crore due to the Indian Railway Finance Corporation would, however, turn the net internal generation negative by around Rs.2,160 crore. The Indian Railways must attract 10 per cent of the Rs.20 lakh crore that the government expects to spend on infrastructure during the 12th Plan. Clearly Mr. Trivedi has not made a beginning to prepare for this. It also means that all hopes for high-speed passenger rail links and new freight corridors will have to wait for a more propitious time, when the train of populism will halt a while at the junction of foresight and financial prudence.

(The writer is a Distinguished Fellow at Observer Research Foundation, New Delhi)

Courtesy: The Hindu

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