Financial Daily from THE HINDU group of publications
Wednesday, Jul 07, 2004
Logistics - Railway Budget
Populist all along the route
S. D. Naik
THE Railway Budget for 2004-05 contains no surprises. Living up to his reputation, the new Railway Minister, Mr Laloo Prasad Yadav, has stuck to the populist track and left the passenger fares for all classes as also the freight rates untouched.
The post-Interim Budget factors, such as the additional financial burden arising out of the merger of 50 per cent Dearness Allowance of employees in their basic pay and increase in diesel price, have been brushed aside by stating that the same would be absorbed by stringent measures of expenditure control and zero-base budgeting.
There is lot of scope to control expenditure, if only sincere efforts are made to cut down the huge surplus staff and improve employee productivity. But there is no evidence to show that even a token effort has been made in this direction.
According to recent estimates, over the last six years, on an average, the rate of growth in Railway revenues, at 8.7 per cent, has lagged the rate of growth in costs (9.65 per cent).
True, given the tough competition from the roads sector, and the prevailing inefficiencies in handling freight traffic, there was hardly any scope for increase in freight rates at this juncture. But there was certainly scope to raise passenger fares by a modest 5-7 per cent just to recover at least a part of the recent escalation in operating costs of the system. This was all the more necessary since Rs 215 crore has been allocated in the Budget for improving passenger amenities. The passengers do not mind a modest fare hike in return for better amenities and greater safety.
It is really unfortunate that the revenue-raising effort in the Budget is confined to some reclassification of parcel rates for Rajdhani trains to garner an additional Rs 50 crore.
However, though there is no effort to generate more internal resources, the Budget contains the usual quota of introduction of new trains and travel concessions to certain categories of passengers, including free travel facility by second-class for unemployed youth travelling to attend Central Government job interviews.
There will be 15 new express trains apart from greater frequency of 12 popular trains. This will be in addition to the 17 Sampark Gandhi Express trains that were already announced in the Interim Budget. This will entail additional expenditure for which the Railway Minister hopes to obtain a higher budgetary support.
As it is, the system is already overstretched because of paucity of funds for the creation of additional infrastructure required for new trains year after year. One does not know what will be the fate of the new scheme announced by former Railway Minister, Mr Nitish Kumar the "Remote Area Rail Sampark Yojana" involving an outlay of Rs 20,000 crore over the next five years. Most of the projects under the scheme are financially unviable.
The Plan outlay for 2004-05 is Rs 14,498 crore. However, this includes Rs 2,933 crore from the Special Railway Safety Fund (SRSF) and an allotment of Rs 300 crore from the General Exchequer for Udhampur-Srinagar-Baramulla National Project. Since the allocations under the SRSF and Srinagar-Udhampur project are outside the Annual Plan of the Railways, the effective Plan size for 2004-05 is just Rs 11,265 crore. Of this, internal generation will provide for only Rs 2,870 crore, and market borrowings Rs 3,400 crore.
While passenger traffic registered an increase of 3 per cent during 2003-04, freight earnings did not show an improvement, at Rs 13,920 crore. Freight earnings showed some increase, at Rs 28,745 crore with freight traffic increasing to 557.39 million tonnes, up38.65 million tonnes over the previous year.
But, clearly, the margins are under pressure in freight movement; much of the increase in freight traffic has come from commodities such as steel and cement. Unfortunately, the Railways has not been able to attract high-value freight because of poor customer service.
The freight traffic target for 2004-05 has now been fixed at 580 million tonnes, 10 million tonnes more than in the Interim Budget.
However, the freight earnings for the year have been pegged at Rs 28,745 crore, the same as in 2003-04, though they are higher by Rs 645 crore than what was projected in the Interim Budget. Passenger earnings have been revised downward from 14,200 crore in the Interim Budget to Rs 13,940 crore now.
Thus, they will be only marginally higher than those in 2003-04.
These figures do not augur well for the future financial health of the Railways. The gross traffic receipts for this fiscal have been estimated at Rs 44,902 crore, or Rs 420 crore higher than the estimate given in the Interim Budget. On the other hand, ordinary working expenses, budgeted at Rs 32,960 crore in the Interim Budget, have been revised downward to Rs 32,860 crore. Evidently, while the receipts figure appears to be an overestimate, the working expenses are bound to exceed the projection in view of the rise in fuel costs as also staff costs.
It is a matter of some satisfaction that appropriation to the Depreciation Reserve Fund is proposed to be stepped up to Rs 2,267 crore from Rs 1,900 crore mentioned in the Interim Budget, while keeping the appropriation to Pension Fund at Rs 6,290 crore.
It is also stated that the current dividend of Rs 3,305 crore and Rs 300 crore towards the deferred dividend liability will be paid. Hopefully, this will be done without asking for additional budgetary support from the Finance Ministry.
What the Railways urgently need now is a new approach to mobilise resources on a much bigger scale through conventional as well as non-conventional sources and a moratorium on populist projects.
To complete the unfinished projects within a reasonable time-frame, the Annual Plan size needs to be stepped up to Rs 18,000 crore to 20,000 crore.
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