Financial Daily from THE HINDU group of publications
Wednesday, Jul 07, 2004
Will it be a happy journey for everyone?
New Delhi , July 6
THE 2004-05 Rail Budget presented by the Union Minister for Railways, Mr Laloo Prasad Yadav, to Parliament on Tuesday appears to have flummoxed many an analyst as he boldly belied even optimistic projection of a minor upward adjustment in upper class fare by coming out with a simplistically easy option of leaving no user of the system displeased.
Probably the United Progressive Alliance (UPA) Government headed by the economist Prime Minister Dr Manmohan Singh took its first economic policy unveiling to be a universally applauded exercise so that harsh or hard measures could be administered once the honeymoon is over and ground realities start sinking in.
For the Minister hailing from Bihar, the nuances of railway finances might be a nettlesome work to grasp as he is more happy in proclaiming that "it will be my endeavour to lessen the burden on the economically weaker sections of society who are dependent upon the railways for providing them a relatively inexpensive mode of transport from one end of the country to the other."
Hence the justification for the absence of any hike in the fare and freight rates for 2004-05. Again, as the Railways has been running trains for upper-end tourists such as Palace on Wheels, Royal Orient, the new minister with his yen for the poor has proposed to run tourist special trains of ordinary sleeper class coaches for common people particularly from small towns and villages through `Village-on Wheels' tourist train for the man in the street.
How far the brittle finances could absorb the election-eve sops (with Maharashtra elections followed by Bihar and a couple of others in early 2005) would be known as the Railways has evolved an ingenious management technique of justifying status quo ante as far as fare and freight structure including suburban fares goes. This is particularly disquieting at a time when the borrowings of the Railways have been escalating whereas the internal resources, which it is generating, have been going down.
The Planning Commission has illustrated this by stating that in the Eighth Plan, the borrowing was 19 per cent whereas the internal revenue generated was 58 per cent.
In 1997-98, the borrowings went up to 34 per cent but the internal resources came down to 42 per cent from 58 per cent. In 1998-99, the borrowings went up to 35 per cent and the internal resources were 39 per cent. In the next year, the borrowings were 35 per cent and the internal resources were 27 per cent.
The position since then has been worrisome with borrowings going up and internal resource generation not being much as to inspire confidence that the system is mending and being run on commercial lines. Though the cost of borrowing has come down both internally and externally in the wake of a general decline in interest rates the world over, the resurgence of inflation particularly in recent weeks in India and the likely hardening of bond and borrowing rates in global capital markets might adversely affect the otherwise rickety finances of the railways.
A cursory glance of the Railway Budget explanatory memorandum of this year reveals that staff wages and other allowances together with fuel cost, lease charges to IRFC (Indian Railway Finance Corporation), pension fund and dividend to the General Exchequer alone absorb as much as 76 paise of every single rupee of the Railways earnings, leaving little for expansion, modernisation and maintenance of existing rolling stocks.
To compound this further, the net social service obligation borne by the Indian Railways in 2002-03 was assessed at Rs 3,908.17 crore which constitutes roughly 9.33 per cent of the total revenue earnings of Rs 41,897.20 crore and 9.62 per cent of the total expenditure of Rs 40,609.10 crore.
No doubt, the Railways has been taking up this matter with the Government by periodically sending a Cabinet Note but unavailingly. Now that the Government headed by Dr Manmohan Singh and reformist Finance Minister Mr P. Chidambaram is in place, the Railways would be too happy if the General Exchequer implements its motto of making all subsidies transparent so that the cost to the system would be absorbed and the balance picked up by the Centre.
In sum, given the political realities and the need to insulate people against high transport cost particularly the ordinary citizens who use train more frequently than others and whose standard of living gets worsened if the freight rate too gets jacked up periodically, the best that could happen is the soft Rail Budget, though its spillover effect in terms of balancing other competing demands of the system would be known later and not immediately.
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