Union Budget holds little hope for Indian Railways

The Railways has incurred loss of over Rs 16 crore per day due to the farmer agitation in Punjab

Subir Roy

The Railways, one of India’s vital organs, is in a bad shape. In an era of climate change with the imperative to pursue sustainable development goals, it is essential to promote public transport and run the national carrier on renewable energy as much as possible.

The Railways, however, is losing money on keeping its existing operations going, not to speak of providing for new investments for betterment and growth.

At such a juncture, this requires a rigorous and informed debate to devise a solution to put the railway back on its feet, but the movement is in the opposite direction. With the merger of the railway budget with the general Budget, the mind space and time available to focus on railway has reduced. The railway ministry has become like any other. Earlier, there was a separate railway budget presented on a separate day, which gave it good time and mind space for undivided attention.

Worse, official information on the Indian Railways is now more difficult to come by, making informed debate that much more difficult. The railway budget used to come with a set of budget papers. Particularly useful among these was the explanatory memorandum that could be readily accessed. Today, the same information is available, if at all, in bits and pieces all over the Union Budget papers and can be located only by those specially equipped to navigate through them.

This is not all. A key reason why the railway budget was done away with was the way in which railway ministers used it to grandstand and hold the attention of the nation for a couple of hours or so, and were loath to announce fare increases as that would amount to adverse publicity for themselves. Hence, fares were not raised for long. So the twin decisions, to delink fare rises from the railway budget and doing away with the budget presentation itself were expected to serve the purpose of taking politically unpopular decisions without much fuss.

However, even now this is not happening. The latest rise in fares from the new year -- by one to four paise per km -- after a gap of five years has been described as “marginal” and criticised for being too little and so unable to address the problem on hand. Hence, speculation on what the Budget will hold for the Railways is partly pointless. Ambitious investment plans will likely be announced and much will be made of the budgetary support to these plans, but it remains to be seen how all the resources needed for them will be garnered.

The Railways ended 2018-19 with an operating ratio of 96.2, only a bit better than the 10-year low of 98.4 in 2017-18, a study by the CAG (Comptroller and Auditor General) observed. The higher the operating ratio, revenue to expenses, the poorer it is.

This means that over 98 paise out of every rupee earned went into meeting expenses. What is worse, even this figure does not convey the whole picture. It would have been 102.7 -- that is expenses exceeding revenue -- had the Railways not taken an advance from power producer NTPC and IRCON, a railway central public sector enterprise.

One of the consequences of this tightness in resources is insufficient allocation to the depreciation reserve fund, which fell by 68 per cent in 2017-18 over the previous year. The funds are used to carry out activities such as replacing ageing tracks. A backlog of under-provisioning in successive years has created a spillover of postponed work estimated at over Rs 1 lakh-crore. Backlog in this area is fraught with adverse consequences as ageing tracks, which tend to crumble, pose a safety hazard.

Resource tightness has also affected capital expenditure, which is needed to improve operational efficiencies and raise capacity. The share of internal resources in capital expenditure has declined to a mere 3 per cent in 2017-18, from 26 per cent in 2014-15. This has caused the Railways to rely more heavily on budgetary assistance from the government and extra budgetary resources.

Higher budgetary support is difficult at a time of overall budgetary constraint, as is now the case. Higher recourse to extra budgetary resources has a revenue implication for future by way of higher interest outgo, which affects the overall financial health of the organisation.

Against this bleak scenario, what can we reasonably expect in the coming Budget?

Chances of raising passenger fares are low as they have just been raised and these rises have consciously been delinked from the Budget. Raising freight rates will not be advisable under the current conditions of economic slowdown, particularly when freight revenue has been running behind target by as much Rs 17,600 crore till November. Making rail carriage costlier will only make it lose further market share to road carriage.

If short-term prospects are so bleak, what about the long term? Much depends on the dedicated freight corridors, which should bring about a fundamental change in the operations of the Railways. Long delayed, they are scheduled to come on stream by 2021. Speed of trains as also overall operational efficiencies are likely to improve.

However, the Railways is not doing the one thing that can greatly help in bringing its finances into shape -- downsize staff strength. This should go hand-in-hand with adoption of new technology. Well over half of its resources go into staff emoluments and pensions. It had in fact adopted a downsizing policy and staff strength had come down to 1.27 million in 2017-18, from 1.33 million in 2015-16. The bad news is that thereafter the Railways has launched a massive recruitment for over a lakh of employees. This can address the high unemployment record of the government, but will be a bane for the Railways.

Subir Roy is a senior journalist and author. The views expressed are personal.