Since the discontinuance of a separate Railway Budget in 2017, Indian Railways  and its annual budget have been marginalised to a couple of paras in the Union Budget. This, in spite of its immense significance both economically and socially.

New rail projects, demands for new lines and trains or rail infra upgrades are no longer in focus during political and public discourses and in discussions around Budget time. One may find occasional news items on high-profile or controversial subjects like the high-speed corridors, dedicated freight corridor (DFC), private train operations, recruitment and the Train-18 project, but a holistic view of the actual health, direction or growth of the Railways is no longer available to the public at large. 

In the run-up to the annual Budget to be presented on February 1, a meaningful evaluation of the Railways’ finances, the impact of Covid and extent of recovery and implementation of ongoing projects is needed.

One can expect some grand announcements this time round too, like re-development of a large number of stations, private tourist/ heritage trains, speed of electrification and movement towards green mobility, long-awaited completion of DFCs, rolling out of hundreds of Vande Bharat trains, and so on.

So, the question is: Will the Railway Minister stick his neck out and identify the projects that would actually be completed in fiscal 2022-23, instead of merely showing budgetary allocations for a plethora of projects?

The bigger question is, however, more basic. Is Railways’ financial health going to improve from the abyss it has found itself in recent years? Is it even on the agenda of the government?

Financial performance

The Railways had budgeted for a gross traffic revenue of ₹2.17-lakh crore and ordinary working expense of ₹2.08-lakh crore. The revised estimate of revenue has already been pegged much lower at ₹1.99-lakh crore, and the trends show that it would not exceed ₹1.9-lakh crore.

The earnings in the first nine months of the current fiscal have reportedly recovered to slightly above 2019-20 levels. But since fixed costs constitute a large share of its working expenses, the operating ratio in real terms is, therefore, likely to be around 120.

In spite of a rap on its knuckles by the CAG on window dressing of its accounts, the Railways may once again meet its pension obligations from government and extra budgetary support, and again try to artificially declare a sub-100 operating ratio, as it did last year and the year before last.

This would be self-defeating as, like all sectors of the economy, accepting the harsh reality of the devastation of the pandemic is essential to resolving it. Observers indicate that the coming years are going to be even more challenging as the moratoriums on its borrowings start ending and the interest burden is going to rise sharply.

Relook infra spending

In fact, the Railways will do well to have a relook at its present tendency of continuing to invest in rail infrastructure indiscriminately, although most of the projects do not seem to be contributing commensurately to revenue, traffic or market share.

A moratorium on fresh projects at least for this year and a focus on completing on-going, capacity critical projects like the DFCs, rather than on electrification and other cosmetic allocations thinly spread across plan-heads and geographies, are the need of the hour. With general elections still far away, the window of opportunity for meaningful work still exists for a couple of years.

Is there any silver lining? Surprisingly, there is. The April-December 2021 numbers do reveal a robust recovery in Railways’ freight and long-distance passenger traffic and revenue. These two segments actually sustain the Railways and are, more than the other services, critical to the nation’s economy.

The buoyancy in the freight numbers is extremely encouraging. The Railways lifted almost 16 per cent more freight traffic, with a 20 per cent rise in freight earnings compared to the pre-pandemic comparable nine-month April-December period in FY19-20. This growth is not only spectacular, the commodity mix has also improved with higher growth in steel, iron ore, cement, container, foodgrains and other goods categories, compared to its mainstay, coal.

This indicates signs of having won back some modal share from roadways. Sustaining this should be the Budget’s focus. Eventually, bringing down the unit cost of freight transportation, through further efficiencies and even reducing the tariff, would be the magic bullet for the Railways.

The way ahead

The Railways seems to have shown some strategic foresight in re-introducing passenger services selectively. Not only has it provided for smoother movement of freight services, it has used the opportunity to rationalise its timetable, giving priority to long-distance passenger trains on popular, profitable routes, and being slow in re-introducing suburban and short-distance passenger services, which are still at about 50 per cent of the pre-pandemic levels.

While this may not be politically sustainable in the long run, it does give the Railways some breathing space in reforming its overall operations and come up with win-win solutions. The suspension of many of the mindless fare concessions to passengers have also helped, and should not be re-introduced in a hurry.

It is an opportunity to have a zero-base look at these, and find a way of recovering them from the relevant ministries — for example, the cost of free travel to politicians from the legislative secretariats. Similarly, the cost of subsidies for suburban traffic needs to be recovered from local bodies and state governments if it cannot be recovered from the fare-box, as various studies on Railways’ finances have suggested.

The Railways is a service organisation and a public utility, so it need not be run as a for-profit commercial set-up. But its legacy of being run as an entity which recovered its costs and was self-sufficient has been vitiated. The Budget should aim to take it in that direction. The last few years, especially after the suspension of the Railway Budget, the Railways has be pushed in the opposite direction.

Luthra is retired CAO, and Mani is retired GM, Indian Railways