Financial Daily from THE HINDU group of publications
Monday, Feb 28, 2005
Track record also matters
R. K. Thoopal
The budgetary exercise by the Railways is primarily a process of finding means to fund the expected expenditure of running the system. This is an annual exercise by the government, based on an obsolete system of accounting on booked rather than accrual basis. It is the magic wand by which the system can show surpluses by not booking `postponable' dues and deferrable expenditure.
The state gets into commercial activities vital for its functioning those in public interest, which give economic independence, which are essential but not being lucrative enough for private sector investments or too big for private sector to find finances and those closely connected with security.
By definition, these are output-oriented and cost consideration take a back seat. In the given situation, therefore, it is but natural that the pricing policy in public utilities is governed by net revenue requirements. The Railways is no exception to this rule. On freight tariff policy, there have been some visible improvements in the last three Budgets, which were diluted during the mid-term review of classification of commodities.
On the passenger front, the scope for continuing the internal cross-subsidy of the second-class traveller by higher-class passenger is fast diminishing. With the rates of air travel dropping sharply, coupled with greater disposable income in households, air travel is becoming the affordable option. The only delay is due to limitations in capacity and coverage. Even in second-class travel, buses are becoming the preferred option, limited only by the quality of roads in some States.
These developments are not undesirable, but unfortunately unplanned. With large investments being made in roadway projects, the moving away of passenger traffic to road and air is inevitable and in a way even desirable.
This will free the various sectors of transportation industry to function in their areas of strength. Similarly, the funding of metro projects by local State governments is also a desirable development, with the funding coming from those who benefit and the subsidies, also being met by those who gain from such investments.
Thus, the overall situation of transport sectors is slowly progressing in the desirable direction. The only negative is that it is slow and not planned. This might result in wasteful investment and may not continue in desirable direction.
In the long run, the Railway system will be essentially a long haul freight system with concentration of bulk traffic in conventional wagons and in unit trainloads and the less than train load and packaged traffic moving in containers.Pricing of freight traffic and capacity augmentation and investment decisions need to be made accordingly.
Any investments made without regard to development in the competing sectors, especially road, will affect the viability and efficiency of the Railways alone. This is so because the state investments in other sectors are only on infrastructure and policy nudges. The investments in Railways are integrated and bulky.
What needs to be done
What has been done
What it boils down to
A welcome step is the proposal to end monopoly of the Concor and planning for double stacking of containers.
It would be interesting to find out who is subsidising whom in the long run. I would not be surprised if it is the poor Bihari who subsidises the affluent Mumbai customer.
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