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Millennium rail budget lacks commercial initiative

A.V. Poulose

THE winds of change, assiduously sponsored by the Prime Minister and the Finance Minister, through second generation reforms have bypassed the Indian Railways, confirming the perception that it is the least reformed public utility in the country. The onl y indication is that reforms and restructuring will have to wait for the recommendations of an Expert Group currently going into these aspects.

A start could have been made by implementing the recommendations of several earlier committees.

The finances of the railways are in a parlous state, calling for radical and hard decisions to save the national life line. The Reserve Funds which had a balance of Rs. 3,564.31 crores at the end of March 1998, have been practically depleted, and are exp ected to close with a paltry balance of Rs. 253.46 crores by end March 2001. The Depreciation Reserve Fund will have just Rs. 76.72 crores and the Pension Fund, with an annual outgo of over Rs. 5,300 crores will end up with a balance of Rs. 113.36 crores .

The operating ratio, the ratio of expenditure to earnings, is a whopping 98.8 per cent. Out of every rupee earned, 98.8 paise are spent, leaving only 1.2 paise for developmental needs.

In one matter the Railway Minister needs to be complimented. She has been able to extract from the Finance Minister, the highest ever budgetary support of Rs. 3,540 crores, in addition to deferring Rs. 1,500 crores out of the dividend payable to General Revenues, proposing to pay only Rs. 615 crores. Rs. 249 crores out of the total of Rs. 3,540, are a loan for the Capital Fund.

For financing the Annual Plan of Rs. 11,000 crores, market borrowings through IRFC are pitched at Rs. 3,400 crores. Another Rs. 268 crores are expected from Own Your Wagon and BOLT Schemes. The total lease charges payable by the railways are Rs. 3,014 cr ores. This is close to the amount to be borrowed. When we take into account the dividend payable (Rs. 2,115.38 crores) also, which is nothing but interest on loans in perpetuity from the General Exchequer, the total outgo becomes Rs. 5,129 crores, way ab ove the total borrowing. We are already in a debt trap.

Faulty investments are the bane of the railways. Through the White Paper on Projects, issued in July 1998, the railways had pointed out that the projects in hand needed Rs. 35,000 crores for completion. Out of these over Rs. 25,000 crores are needed for projects which are not financially viable. No commercial organisation anywhere in the world can finance this level of unproductive investment.

With such a heavy backlog, prudence required that no addition was made to the shelf of projects, but seven new line projects, three gauge conversion projects, and fifteen doubling projects have been added. Additionally 30 new surveys have also been propo sed.

The only small mercy is the Railway Minister's assurance that all the new projects included by her has secured the required clearances.

With a high level of social burdens borne by the railways, which will be over Rs. 3,000 crores, of which over Rs. 2,000 crores pertain to below cost charging of passenger and related services, opportunity should not have been lost to rationalise the pass enger fares. As of now less than 70 per cent of the cost is being recovered, while over 130 per cent recovery of cost is made from freight services. This level of cross subsidisation is not sustainable.

Unfortunately, there is no willingness on the part of the Finance Ministry to compensate for the social burdens. That Ministry is also helpless, as whatever they can spare will be used according to their priorities. It is recalled that they put in over R s. 15,000 crores to save the banking sector, and recently sanctioned over Rs. 5,000 crores to bail out the Steel Authority of India. Railways do not attract such priorities in their scheme of things. As a wag put it, the Railways should first become bank rupt for getting any such level of compensation or rehabilitation package from the General Revenues!

Raising of resources through commercial use of air space, publicity arrangements in railway premises and rolling stock and so on, as recommended by the Task Force, are welcome, but these can only contribute insignificant proportion of the mindboggling re quirements of the railways.

The proposal to set up a corporation, as a special purpose vehicle for gainfully utilising the ``Right of Way'' of Optic Fibre Cable Network, is a welcome one. This needs to be implemented expeditiously, so that the railways do not lose the initiative to other competitors in this field.

The efforts at getting the State Governments to participate substantially in the Metropolitan Projects are commendable. These need to be pursued vigorously. Not only should they share the capital costs, but they should also share the operating losses.

The multi-pronged freight policy, aimed at raising railways' market share contain some useful elements. These and the passenger amenities proposed are welcome, but these could have been used as additional justification for adjusting passenger fares. Qual ity cannot be increased without additional costs, which if not recovered will only add to the railways' financial woes.

The marginal increase in freight rates cannot be faulted considering the hikes in diesel price and electricity charges. Any corrections needed can be through negotiated special rates.

Considering the requirements of the Railways, additional resource mobilisation of Rs. 600 crores is indeed very modest.

The emphasis on track renewal, signaling and telecommunication and somewhat increased allocations for completing some of the long-delayed projects are commendable.

The proposal to build budget hotels on railway land, it is hoped, will not tempt the railways to enter the hospitality business, especially when the Government is taking steps to get out of businesses, in which they have no business to be present!

The concessions announced send out wrong signals, especially when railways need to tighten their belts.

The first railway budget in the new millennium has disappointed the ardent well-wishers of the railways, since it does not reveal any special steps to bring about greater commercial orientation to the working of the railways, to be able to get out of the financial mess and to enable the railways to discharge the responsibility of providing quality service, rightfully deserved by the tax payers who are the real owners of the railways.

(The author is former Financial Commissioner, Railways)

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