Lalu Yadav's Railways Do Well Again

For the third year running, the Indian Railways have been able to achieve a large surplus. The minister for railways, Lalu Prasad Yadav, announced, while presenting the budget for 2008-09, a staggering amount of Rs 25,000 crore (before providing for the traditional dividend payment to the central exchequer) as the surplus for 2007-08. A similar amount is to be generated in the coming fiscal year. Traffic earnings have been growing at double-digit levels, the year 2007-08 is expected to end with an operating ratio of 76.3 per cent (the best in four decades) and even after making some provision for the recommendations of the Sixth Pay Commission, this ratio is expected to be a healthy 81.4 per cent next year. In 2008-09, the railways have projected a huge Plan investment of Rs 37,784 crore, of which only 21 per cent will be financed from the general budget. Can we then say that the railways are in the process of undergoing a radical reorganisation?

The answer is not quite clear though a divergence from the past is obvious. The railway minister of course attributes the improved efficiency to his out of the box thinking and a passion to follow the road less travelled. Yet, it is admitted at the same time that there is no great mystery behind the turnaround – which is based entirely on playing with volumes and hence driving down unit costs. This is a result of realising the inherent economies of scale in the institution that were waiting to be tapped all these years.