After presenting a White Paper and Vision 2020 document to Parliament, the Railway Minister, Ms Mamata Banerjee, preferred to completely sidetrack them, while presenting the Rail Budget for 2010-11.

With her eyes fixed on the West Bengal elections, she once again resorted to a spate of populist announcements neglecting the core activities of the Railways, even as the finances of the organisation had come under severe strain.

Not surprisingly, railway finances are in a pretty bad shape this fiscal. According to reports, earnings from freight and passenger tariffs have taken a hit of over Rs 4,000 crore between April and December 2010.

Freight earnings are said to have been impacted by a substantial reduction in the loading of iron ore for exports; the impact on earnings on this count alone has been to the extent of Rs 2,500 crore.

DRAMATIC DECLINE

The much-acclaimed ‘turnaround' story of the Railways, which was making waves in business schools not so long ago, now appears to have suddenly gone off-track and headed towards a sudden decline.

The Railways' operating ratio — an indicator of efficiency — which had come down to 75.9 per cent in 2007-08 has already crossed 95 per cent now, higher than the budget estimate of 92 per cent. It may be recalled that the cumulative cash surpluses of the Railways before dividend during the four years ending 2007-08 had amounted to Rs 68,778 crore.

The cash surplus of over Rs 25,000 crore during 2007-08 was 25 per cent higher than that in the previous year.

However, the cash surplus declined to Rs 17,400 crore in 2008-09 and was projected at a meagre Rs 1,328 crore in the Rail budget for 2010-11.

According to sources in Rail Bhavan, the Railways has a net deficit of around Rs 2,500 crore. According to insiders, it may not be left with any funds this year to appropriate money into two critical reserves — the capital fund and development fund — that provide for purchase of new assets and improvement in passenger amenities.

In a desperate attempt, the Railways raised freight charges on some key commodities such as sugar, chemicals, oil cakes and some petroleum products, with effect from December 27, 2010, by about four per cent so as to compensate for the increasing operating and fuel costs. It has also put on hold all PPP projects for want of funds. While there is no denying that the additional financial burden on the system, consequent to the implementation of the Sixth Pay Commission recommendations, has affected the resource availability of the Railways for capital investment, the consistent refusal of Ms Mamata Banerjee to shun the populist track has only added to the resource crunch of the behemoth.

PRICE OF POPULISM

Her last budget, for instance, appeared like the Finance Minister's national budget with accent on social sector schemes such as setting up of hospitals and diagnostic centres, kendriya vidyalayas, model degree colleges, technical and management institutes, Tagore Museum and Academy, drinking water bottling plants, and so on, at the cost of the core activities of the Railways.

According to experts, Ms Mamata cannot but blame herself for driving the organisation in the red. She has stubbornly refused to raise passenger fares for suburban sections and lower classes on long-distance trains even as the losses from passenger operations were projected to zoom to Rs 19,120 crore in 2009-10 from Rs 14,000 crore in the previous year.

Incidentally, these fares have not been raised for the last seven years even as the operating costs have escalated. However, this has not discouraged her from announcing a spate of new trains, thus adding to the losses. Though she had promised 1,000 km of new lines every year, she has not been able to deliver even 10 per cent of that.

And what is her strategy to deal with the impending financial disaster facing the Railways? She had proposed non-payment of dividend to the government for five years from 2009-10 to mobilise resources for expansion plans. Expectedly, the Finance Minister, Mr Pranab Mukherjee, is reported to have disapproved this plan. According to sources, the Finance Ministry has indicated to the Railways that an increase of over Rs 14,000 crore in revenue was possible with a logical realisation from passengers.

Not changing the lower class passenger fares has already cost the Railways over Rs 61,000 crore during five years ending 2009-10. The year 2010-11 is expected to add another Rs 20,000 crore to these losses.The average passenger fare-to-freight ratio in India at 0.3 is very low compared to China's 1.2 and South Korea's 1.4.

In a note, the Prime Minister, Dr Manmohan Singh, had requested the Railway Minister to make a beginning at reducing railways' excessive dependence on freight for garnering revenues by raising fares. But this plea was ignored and she has indicated that even in the forthcoming budget, there would be no hike in fares.

Instead, she has sought a two-fold increase in gross budgetary support from the Finance Ministry in the coming Rail Budget to tide over the financial crisis and expedite the completion of various ongoing projects.

She has asked for Rs 39,600 crore gross budgetary support against Rs 15,875 crore t he Railways got in the last budget. Unless the Railway Minister shuns the populist track and makes way for sweeping structural reforms, the behemoth will find itself in a serious financial crisis.

Perhaps, the time has come to go for the much-needed corporatisation of the Railways, as recommended by various committees in the past.

Related Topics