Financial Daily from THE HINDU group of publications
Friday, Jul 02, 2004
Logistics - Insight
Railways: Waiting for a new direction
S. D. Naik
Successive Railway Ministers have used the railways as an instrument of patronage, indulged in political populism and indiscriminately announced new projects that were economically unviable and not backed by adequate availability of resources. The inevitable funds crunch resulted in heavy throw- forward of projects. A White Paper on Railway Projects brought out in 1998 had listed the pending projects worth more than Rs 35,000 crore, more than 90 per cent of which were identified as economically unviable.
In the Interim Rail Budget presented earlier this year, the former Railway Minister, Mr Nitish Kumar, refrained from imposing any new levies despite a rise in fuel costs by Rs 4,000 crore under the pretext that it was only a vote on account.
However, he failed to show the same restraint while announcing a number of financially unviable populist schemes in the run-up to the general elections, putting in jeopardy the already precarious financial health of the system. In his previous Budget for 2003-04 also, Mr. Nitish Kumar had not raised passenger fares keeping an eye on the impending polls in some major States.
Earlier, Ms Mamata Banerjee's successive Railway Budgets for 2000-01 and 2001-02 had left passenger fares untouched though the system was losing around Rs 4,000-5,000 crore annually on its passenger traffic. She had promised commercial utilisation of surplus land and other assets of the Railways to earn additional revenues and to make greater use of telecom and information technology to improve efficiency. But no headway spears to have been made in this direction so far.
When Mr Nitish Kumar succeeded Ms Mamata Banerjee as Railway Minister, it was hoped that he would concentrate on Railway reforms and try to put the ailing system back on track. However, this hope was belied when he also shifted on to the populist track by announcing the creation of seven new Railway zones headquartered at Hazipur, Jaipur, Allahabad, Bhubaneswar, Bilaspur, Hubli and Japalpur taking the total Railway zones to 16 and divisions to 67. These zones were created disregarding the advise of the Railway Board.
A recent stock-taking by the Railway Ministry on the status of these new zones which became operational more than a year back revealed that not only were the seven new entities were in a bad shape, the old zones were also facing operational problems.
Senior officials say that the creation of too many zones has led to unhealthy competition among the zones. The Railway Board is reportedly inundated with complaints from the new zones that their neighbouring zones have not been releasing rolling stock for carrying passenger and freight traffic.
Mr Nitish Kumar's predecessor, Mr Ram Vilas Paswan, was on the wrong track all the time and had created a sort of record in political populism leaving the Railway finances in a terrible mess. He was the most prominent among the leaders in the United Front Government who virtually forced the Centre to surrender before the employees unions over the Fifth Pay Commission Award that made many State governments bankrupt. The immediate additional burden on the Railways on that account was Rs 6,200 crore in 1997-98. But even then he refused to raise fares and freight to meet the additional burden.
After making a mess of Railway finances, Mr Paswan had even mooted the idea of using the Pension and Depreciation Reserve Funds of the Railways for the working expenses of the system. But these funds are under the custody of the Finance Ministry and Mr P. Chidambaram, the then Finance Minister, rejected the proposal.
Incidentally, Mr Paswan was also the original architect of the proposal to create half a dozen new Railway zones, including the one with the headquarters in his borough of Hajipur, the notification for which was issued by his successor, Mr Nitish Kumar.
It is unfortunate that the reform process launched since 1991 has not had any impact on the Railways as the successive ministers in-charge of the behemoth refused to shun the populist path. Seven successive Rail budgets, post-reform till 1999, effected massive increases in freight rates to subsidise passenger fares. Consequently, the user industries diverted a major portion of their traffic, even in bulk commodities, to the road sector. Thus, there was a double blow to the Railway system in that it lost a significant portion of the profit-making freight traffic and the new passenger trains added to its losses further.
While steadfastly refusing to raise lower class passenger fares, successive Railway Ministers have made it a point to add new passenger trains, more so in their constituencies to create vote banks for themselves.
The annual addition of passenger trains without creating the required additional infrastructure, has been severely limiting the freight carrying capacity of the railways, apart from exposing the system to increased risks of accidents. Commuter surveys have indicated that they won't mind moderate increases in fares for better passenger amenities and better travel safety.
As Mr Shanti Narayan, former Member (Traffic) of the Railway Board points out, while the freight segment generates two-thirds of the revenues of the system, the capacity available to it is only 50 per cent; the balance caters to the passenger segment which runs at a loss.
With the economy entering a higher growth path, it is time the Railways paid much greater attention to freight traffic and effect at least moderate hikes in second-class passenger fares for long-distance trains as also for suburban travel in view of the ever-rising fuel costs and other operating expenses.
After a spate of accidents, it was decided in 2001 to create a non-lapsable Rs 17,000-crore Special Railway Safety Fund through a one-time Central Government grant of Rs 12,000 crore and imposition of a rail safety cess on passengers to mop up Rs 5,000 crore.
In addition, at the initiative of the former Prime Minister, Mr Atal Bihari Vajpayee, it was decided last year to provide extra budgetary support of Rs 15,000 crore for the Rail Vikas Nigam to strengthen the Golden Quadrilateral.
However, instead of using the Prime Minister's generosity to augment and strengthen the Railway finances, the Railway Ministry drew up new plans to squander the scarce resources on more populist unviable projects.
For instance, while the Railways plans to spend Rs 15,000 crore allocated for the Rail Vikas Nigam over the next few years on commercially profitable projects, Mr Nitish Kumar, in his Interim Budget, proposed an expenditure of Rs 20,000 crore on projects under a new scheme Remote Area Sampark Yojana that will be mostly unviable.
Not surprisingly, Railway finances are now heading towards a crisis and the beleaguered system is waiting for a new direction. However, going by the initial pronouncements of the new Railway Minister, Mr Laloo Prasad Yadav, the signals are far from encouraging.
He has already stated that there will be no increase in second-class and sleeper category fares. Thankfully, he has directed the officials to curb ticketless travel! Instead, he has sought an increase of Rs 2,000 crore in the Centre's support to fund safety and modernisation measures. The Finance Ministry had fixed the Central support for the Railways Plan at Rs 4,544 crore in the Interim Railway Budget.
Considering the serious constraints facing the Finance Minister and the demands being made for higher allocations for agriculture, education and health, it may not be feasible for the Centre to raise the budgetary support for the Railways any further. Hence, there should be a much greater effort on the part of the system to mobilise resources through further rationalisation of fare and freight structure and aggressive marketing.
What is even more worrying is that the new Minister has promised 40,000 new jobs when the system is already saddled with excess staff to the extent of over three lakh. Hence, the downsizing efforts being made over the past few years may receive a big setback.
As it is, the salary and pension liabilities of the Railways now account for 45 per cent of the total expenditure. The Prime Minister and the Finance Minister should discourage this kind of profligacy by refusing to enhance the budgetary support. What the Railways now need is a new direction and a vision for the 21st Century.
The Parliamentary Standing Committee on Railways has pointed out in its 17th report that Railways had failed to match both passenger and freight revenues to its budget projections in recent years. It has suggested a further reduction in freight rates, a flexible fare policy, incentives to premier customers, and long-term arrangements with customers who could assure bulk freight traffic to the system.
The Committee has said that the innovative arrangements such as running special parcel trains at 100 km per hour shadowing passenger trains, reducing the speed differential between goods and passenger trains and greater use of information technology to generate new business and maintaining records through Freight Operations Information System, should be pursued aggressively.
To improve the Railway finances, there is should be a temporary moratorium on the announcement of new projects and new passenger trains. Also, selective privatisation and corporatisation should be given serious consideration for improving the operational efficiency of the corruption-ridden organisation.
This was already recommended by the Rakesh Mohan Committee which was set up to chart a roadmap for rail services but did not find favour with the then Railway Minister, Mr Nitish Kumar.
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