The pre-Railway Budget analysis by various agencies including the media took note of the deteriorating financial position of the Indian Railways because of the slowdown of the economy and also on account of Sixth Pay Commission Recommendations.

There has been a general concern about the adverse operating ratio in the last two years and also the depletion of the fund balances. The operating ratio, which was 96 per cent in 2001-02, came down to 75.9 per cent in 2007-08. Thereafter, it went up to 90.5 per cent in 2008-09 and the Revised Estimates for 2009-10 projected the same at 94.7 per cent.

For the current fiscal, the projected figure is 92.1 per cent which is expected to fall to 91.1 per cent in the year 2011-12. The impact of the post-budgetary factors of Rs 5,700 crore, coupled with a reduced loading target of 924 million tonnes, have had their effect on the Railways' performance for the current year. While the Railway budget recognises the difficult situation in which the organisation is placed, it hopes that revival will take place.

Lessons ignored

When the Railways was in a similar position immediately after the Fifth Pay Commission, which even led to a default in dividend payment, it initiated conscious measures to rectify the situation through a blend of innovative ideas to attract freight traffic as also to remedy the aberrations and distortions in the freight-fare ratio.

Simultaneously, there were also reforms to hive off non-core activities, expenditure control through manpower planning, energy usage and other savings in materials, etc. Even the lease charges payment for market borrowings came down, thanks, of course, to a low interest rate regime coupled with the right mix of domestic market and external commercial borrowings by the Indian Railway Financial Corporation.

It is also well known that the setting up of the Special Railway Safety Fund provided the necessary fillip to augment capacity so that there were no bottlenecks in carrying the buoyant incremental growth in traffic. The results of all these measures are too well-known to need elaboration!

Fares untouched

The Railways are in a similar position today and the expectation was that the passenger segment not having been touched for the last eight years, there was a case for upward adjustment, at least in the upper-class segments. The Railways are also offering a number of value-added services for high end customers such as non-stop Duronto Expresses, with their time-saving implications.

The exploitation of information technology has facilitated online booking for many travellers, removing the hassles of going out to buy a ticket. It would have been desirable to go in for a pricing policy for the passenger segment to target the high-class travellers, especially as they claim they would not mind paying more for a better service.

By not raising the fares at all, and also reducing the on-line booking charges, the Railways continue to be saddled with a loss of more than Rs 17,098 crore (2009-10 RE) in running the non-suburban coaching services.

Similarly, the fare structure for EMU services also could have been recast, especially when there is renewed emphasis on providing additional EMU services in the metropolitan cities. The Budget has announced 47 additional services for Mumbai, 34 new services in Calcutta Metro, 50 for Calcutta Suburban, 9 additional services in Chennai, and 6-9 for Secunderabad.

The Railways' vision of segregating the suburban corridor, combined with the present announcement of an integrated suburban rail network for Mumbai, Chennai and Hyderabad, should enable a reasonably satisfactory service for commuters in these metros.

In a market-driven economy, where user charges are expected to be commensurate with the quality of service, the Railways would not be faulted if such an attempt had been made in the current budget. This point gets added emphasis since the commuters are mainly factory and office goers and do not require any subsidisation. A scheme similar to the Izzat scheme, which benefited 4 lakh commuters, could have taken care of the concerns relating to the aam aadmi, or daily wage earners.

While there has been a mention about austerity measures and the likely savings on this account, the budget is loaded with a number of announcements which are likely to increase the money spent on staff.

These include a cadre restructuring for better promotional prospects of staff, setting up of a sports cadre, manning of all the unmanned level crossings by 2012, and recruitment of 16,000 ex-servicemen.

Also, the scheme for setting up 10,000 shelters for poor people living near the rail tracks, in collaboration with the Urban Development Ministry, has implications for the Railways' land policy, and has to be approached cautiously.

FINANCIAL ISSUES

The Annual Plan size of Rs 57,634 crore for 2011-12 was of urgent necessity, being the final year of the Eleventh Plan. The Railways have so far spent Rs 1.43 lakh crore in the Eleventh Plan, against a projected outlay of Rs 2.51 lakh crore. Thus, even with this stepped-up outlay, the Railways may fall short and the shortfall is spread across all three sources — internal resources, extra budgetary resources (borrowing and PPPs) and gross budget support.

In a nutshell, the railway budget has skirted a number of issues so vital for restoring the financial health of the organisation.

(The author is a former Financial Commissioner, Indian Railways.)

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