Revive The Rail System

Suresh Prabhu’s Budget is on track, but essential steps need to be taken in matters ranging from accounting to freight management to passenger amenities to outreach.

There has been some talk in policy circles in the past few months that role of the Railways system is crucial for a rapid and sustained growth of the Indian economy for many reasons. One is the lower costs that would be involved in the rail movement of goods, which is important since it is necessary to be competitive in an increasingly globalised economy. Underlying this is the consideration that the Railways needs to get back to moving much more goods as compared to road transport so as to achieve an optimal model mix. The implications would be many, one of which would be huge relief on the Balance of Payment situation resulting from reduced fuel consumption of road transport. In addition, any shift towards a greater role for the Railways would be economically and environmentally sustainable.

Given this background, it must be mentioned that Railway Minister Suresh Prabhu’s maiden attempt on the budget front, it appears on first sight, is creditable. But we need to study some of the significant observations made in the White Paper that was also placed in Parliament around the same time as the Railway Budget and which really reflect the challenges before the system that needs to be effectively addressed not only by way of short-term annual budgetary proposals but also in terms of long term plans which are expected to be spelt out in detail in a Vision document that is to be released soon. Moreover, one also needs to examine whether some policy recommendations of GOI (2014) have been taken up seriously and given their due place in the current Budget.

“The biggest challenge facing Indian Railways today is its inability to meet the demands of its customers, both freight and passenger. Apart from the quantum of investment, quality ofdelivery is also an issue.” (GOI, 2015, p6) While the gap in provision has been a consistent feature over many decades, serious attempts to make better utilisation of the existing capacity were made only since 2004, though it was observed later that limits had been exceeded thereby, raising safety concerns. But during the past decade or so (or even much earlier), there was no attempt to understand the need to revise passenger fares steadily and slowly wherein surpluses required for upgrade and expansion of the system could be provided — a point that was made emphatically by the government in 2001. While quality of the services was to be an important consideration, huge gaps in provision made the level of quality considerations unimportant or even unnecessary.

On the passenger front, it has been typical of railway minsters to promise a lot on better and safer travel. The current incumbent does the same. It must be understood that a lot has been done in the past by way of plans of introduction of many passenger trains. What is required is the need to ensure that implementation of plans is undertaken with a sense of responsibility and accountability.

Some rise in passenger fares, especially for long distances, would have sent the signal that the passenger also needs to pay for the services given. With some hikes in fares last year and no hikes this year or maybe for some years to come, one cannot expect reasonable surpluses to emerge to take care of the emerging requirements. The minister should have emphasised that, while people expect better services if fares are raised, the failure to raise fares for a very long time had resulted in poor generation of surpluses badly required to improve the quality of services. The vicious cycle needs to be broken; the process should have begun this year, especially when he claims that he is keen on depoliticising the Railway Budget.

It has also been a regular and familiar feature of the Railway Budget to talk of a social burden of nearly Rs 25,000 crore (in this year’s speech). However, it is not too obvious from a reading of not only the budget papers but also its related documents that this is a genuine figure. In other words, the basis for such a figure has never been clear. This writer’s attempts to examine it based on cost considerations have been futile due to the hesitation of the authorities to provide the data necessary for such a calculation, which is by no means simple. With the information technology tools necessary to develop the database at a fairly disaggregate level, it is hoped that there is more transparency in cost calculations and, thereby, in fare setting on a more a rational basis. Further, the failure to raise passenger fares makes the Minister’s job of tackling under-investment more difficult since there are few additional sources that can be tapped in a big way except for the budgetary support, which this year has been proposed at around Rs 42,000 crore compared to the Rs 32,000 crore outlay in 2014-15.

More recently, it has been announced that a major public financial institution would be supporting long-term investments of the Railways with an interesting feature that there will be moratorium on interest payments for five years. Would that mean there would be a deferred interest payment liability — something like the problem of deferred dividend payment liability, which the department has been facing for quite some time? With this new product, the cost of borrowing can be expected to be substantially higher, proving to be a burden on the Railways’ finances, which is already under strain due to the extra-budgetary sources of finances such as capital market borrowings through one of its public sector subsidiaries.

The focus on freight has got some impetus with the statement that no new trains are proposed for the current year, which means saving freight train paths to generate the badly required revenue that only freight movement can offer. It is good to note that serious engagement with customer-related issues will be undertaken at all levels (GOI, 2015, p20).

A major reason for the sharp decline in freight movement by rail (in relative terms) has been the failure to take care of serious quality of service issues such as reliability, punctuality, etc even with respect to bulk movements. While every effort to wean manufactured items back to the system is welcome, the focus has to be on handling bulk items in a much more significant way, and that too more effectively and efficiently. To do this, the pace of work on the Dedicated Freight Corridors needs to be increased significantly. Though this aspect finds a mention in the planned outlays, they have been only marginally increases.   The run up to a more seamless use of the freight corridors is already proposed by way of setting up of the Transport Logistics Corporation that can be expected to help the Railways in their attempt to promote a multi-modal mechanism in a big way. The GOI 2014 report had clearly emphasised the need to support the Indian Railways to perform its rightful role in terms of achieving an optimal modal split over a period of time. The study undertaken by RITES (2009) brought out the misallocation in terms of modal shares; the then current modal share was heavily oriented towards road movement of freight and that this was contributing to an annual social cost of around Rs 40,000 crore — a figure that could be much higher at present.

Though there is some obstinate persistence on the bullet train front, it is obvious that other such mega plans are being toned down to be replaced by proposals for higher speeds on existing corridors by way of upgrade. Here again, it must be mentioned that the minister has rightly talked about oversaturated corridors and the need to have additional track capacity. It is to be noted at the same time that many of these saturated corridors provide for many pairs of short-distance passenger train movements, which need to be taken off the system in a phased manner while attempting to put in place a reasonable bus system in a specified time period to take care of such short distance movements.

The route capacity involving nearly Rs 1 lakh crore is to be expanded with some mention of the new lines being provided in the Northeast. To implement an expenditure of Rs 8 lakh crore over the next five years is going to be a very formidable task. Hopefully, the minister will present the details of expected sources of such funds in the vision document that he has promised to bring out soon. With many of these new lines being of strategic and social importance, it is necessary for the government to pledge substantial amount of funding as was done in the case of the Safety Fund a decade ago, the benefits of which are being derived today.

Any attempt at a reduction in the operating ratio is welcome, but this will require very concerted efforts to boost revenues while reducing wasteful expenditure. In similar fashion, there must be efforts undertaken to stipulate norms of physical performance so that judgements regarding achievement of such standards are possible on a regular basis. As of today, a mere statement of some operating performance statistics leads us nowhere. The Efficiency Bureau of the Railways needs to be revitalised in a big way to perform this important role. This can be part of the larger mechanism that has been proposed to prepare regulations, provide operating benchmarks, setting tariffs and also deal with adjudication instead of merely having a tariff regulator. Such a mechanism could replace the Rates Tribunals, given that the scope is larger than that of the tribunals.

The coastal connectivity programme linking the ports needs to be put firmly in place on a time-bound basis so as to help boost our trade prospects in a big way.  With more ports to appear with greater drafts, adequate and effective rail connections will be the only way to handle all the containerised traffic meant for the interior parts of the country. In the case of many services at the ground level, the private sector can do a lot more in supplementing the efforts of the Railways. The move to have a relook at the current PPP model in Railways should help in delivering better. Service-related industries should take this opportunity to work with the Railways in trying to come up with appropriate models to help serve the objective of public-private partnership better.

For that matter, why not comprehensively review the PPP model not only in the Railways but also in infrastructure in general?  Such a review can lead to a far more practical and realistic model that can be attempted in different areas in regard to provision of the hardware in infrastructure while taking into account the similarities and differences.

The proposal to involve the states in expansion of the network is welcome. Here again, the private sector can be tapped to partner with the Railways and the states to provide connectivity to distant places and also the ports. The Budget emphasises decentralisation in terms of a number of activities even at the station level. This is particularly true in the case of suburban rail operations in our urban areas. The railways have long expressed their unwillingness to take part in these activities. They must take a step forward in allowing the existing suburban rail systems to be autonomous agencies under local control. Local resources need to be tapped to provide typical services of a local character in order to serve typical local needs leaving the Centre to handle regional and national needs.

To conclude, this year’s Railway Budget attempts to take some steps forward but maybe has slipped and taken a step backward.

References

GOI (2001)    Indian Railways Report, Ministry of Railways (Railway Board), Government of India, New Delhi.

GOI (2014)  Report of the National Transport Development Policy Committee (Chairman: Rakesh Mohan), Planning Commission, Government of India, New Delhi.

GOI (2015)  Indian Railways: Lifeline of the Nation – A White Paper, Ministry of Railways (Railway Board), Government of India, New Delhi.

RITES (2009)  Total Transport Systems Study, Study undertaken by Rail Indian Technical and Economic Services for the Planning Commission, Government of India,