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Indian Railways on a Fast Track

Indian Railways on a Fast Track

A close look at the Railway Budget 2008-09 to understand the real success achieved and a highlighting of some matters of concern. The complementary nature of the relationship between the two main modes of transportation, rail and road, needs to be promoted in a much more significant way if efficiency and environmental concerns are to be met. The road map set out for the next five years seems to provide a clear framework for action and implementation.

COMMENTARY

Before looking at some figures, we

Indian Railways on a Fast Track

must note that over the past two/three decades, the railways has built up a substantial capacity, which has not been S Sriraman effectively utilised. A number of studies

A close look at the Railway Budget 2008-09 to understand the real success achieved and a highlighting of some matters of concern. The complementary nature of the relationship between the two main modes of transportation, rail and road, needs to be promoted in a much more significant way if efficiency and environmental concerns are to be met. The road map set out for the next five years seems to provide a clear framework for action and implementation.

S Sriraman (sriraman@economics.mu.ac.in) is with the department of economics, Mumbai University.

Economic & Political Weekly

EPW
march 15, 2008

T
he railway minister, Lalu Prasad Yadav, has, for the fourth time in a row, shown a huge cash surplus with the figure touching nearly Rs 25,000 crore in 2007-08 (revised estimates) and the operating ratio improving from 84 per cent in 2005-06 to 76 per cent in 2007-08; almost 20 per cent more than last year’s figure.

Even after meeting all the revenue charges including payment of dividend, current and deferred, to general revenue, the surplus is expected to touch Rs 13,500 crore, which is about Rs 3,200 crore higher than the actuals for 2006-07. Another significant development is the Annual Plan outlay for the railways, which indicates the magnitude of capital investment outlays is now less dependent on support of the central exchequer. In 2008-09 the exchequer’s contribution will be only about 20 per cent.

Does this mean that the turnaround on the Indian railways is real? There are many indications to this effect but at the same time there are some underlying disquieting features which are not easily observed. We undertake a closer look at the Railway Budget 2008-09 to understand the real success achieved and some matters of concern.

and reports of high-powered committees had pointed out to such an underutilisation, which if remedied, could stem the diversion of freight traffic to roads, especially of low valued bulk items. Except for a brief reorientation of strategies aimed at better utilisation of capacity, undertaken in the mid-1980s, serious attempts have never really been made. As a result, surpluses were meagre and there was limited investment in modernisation. The early part of this century saw a quantum leap in provision for safety works which strengthened the system to some extent. Given the idle capacity that was still waiting to be utilised, a change in the mode of thinking or what the minister claims to be out-of-box thinking was put into effect, the success of which is being hailed as the turnaround. It was no doubt a brave strategy, which fortunately helped railwaymen realise their true potential and its importance for the economy at large. The Railway budgets during the past four years have reflected this strategy. The freight business has seen a steady increase with the incremental loading likely to be 233 million tonnes. For 2008-09, freight revenue is expected to go up by nearly Rs 5,000 crore and touch a figure of more than Rs 52,000 crore.

COMMENTARY

In 2007-08, traditional traffic like coal, iron ore and cement have seen increased loadings though foodgrains and fertiliser traffic continue to stagnate. All this has been achieved by greater efficiency of operations. The turnaround time of a wagon has come down to nearly five days and loading per wagon has increased to 24-25 tonnes and more even to the extent that a recent internal study revealed that overloading had become the norm rather than an exception. This phenomenon of overloading – a widespread practice on the roads – has emerged as a major source of concern among railway circles as such overloading damages tracks and could result in accidents if not detected on time. The same tracks are also used for passenger movement in a significant way. In the case of other items (mostly high value), though a much higher target of 120 million tonnes was fixed on the expectation of diversion back from roads, the performance is unimpressive with a continued stagnation on that front. In the absence of any meaningful data related to the system as a whole, the claim that railway market share has risen cannot be substantiated. However, it could be hypothesised that the substantial increase in rail traffic is in absolute terms, which provides the basis for higher earnings.

The passenger segment has not witnessed a similar surge though there has been a significant increase in the II class movement which had stagnated during the early part of the current decade. Currently, passenger earnings form only about a fourth of the total earnings of the railways – a figure that could easily be higher at a third of the earnings without much difficulty. These earnings are slated to grow by more than Rs 1,500 crore during 2008-09. It is widely perceived that the airlines have been able to compete effectively with upper class movements. With this class of passengers constituting a very minuscule portion of traffic and revenue, the railways have been well advised to focus on sustaining the momentum with regard to II class traffic by provision of more amenities. However, from all accounts, they have a long way to go in terms of reaching a critical minimum level of quality of service and safety that can be accepted by the large body of middle class and lower middle class trip makers, who currently constitute the core customers. The attempt to cut fares in the long-distance II class segment is ill-advised as this is likely to reduce revenue given the inelasticity of responses of trip makers to changes in prices. This could reduce incentives to provide better quality services, which must be the guiding principle. A reduction only serves to create more pro blems by increasing the burden on freight revenue as a source for crosssubsidisation purposes.

Public-Private Partnership

The Annual Plan outlay for 2008-09 reflects a substantial dependence of annual outlays on internal resources as well as some borrowings. The outlay of Rs 37,500 crore does envisage drawing internal resources to the extent of Rs 20,000 crore, borrowings (in various forms) of Rs 10,000 crore and drawing about Rs 8,000 crore from the central budget – a budgetary support of just about 21 per cent compared to about 51 per cent around the turn of the century. Though recent attempts to attract private investments through public-private partnership ventures have not been successful, a re orientation of this strategy to involve production of rolling stock and construction of terminals on railway land is expected to provide several value added services to the customers.

Given that users are in favour of pointto-point solutions, it would be useful on the part of the railways to go a step further and promote active collaboration with the road goods transport industry at various locations with a view to provide services at competitive prices over short and medium distances for which they are best suited. Such a partnership (also a form of public-private partnership) would go a long way in giving rise to a more optimal modal split when viewed from the perspective of the economy. Though a small beginning has been made by giving licences to private parties to run container trains, the complementary nature of the relationship between the two modes needs to be promoted in a much more significant way if efficiency and environmental concerns are to be met.

The road map for the next five years – up to the end of the Eleventh Plan – that has been set out seems to provide a clear framework for action and implementation. It clearly displays urgency in doing things on a fast track even in the short run. The target is to touch 1,100 million tonnes as against the expected movement of nearly 800 million tonnes in 2008-09. With regard to major bulk movements like those of coal, steel and cement, a definite direction seems to be in place to achieve certain targets by the end of the Plan period. The steel and cement sectors are to be tapped to the extent of about 200 million tonnes while the target for coal movement would be much higher than the current movement of nearly 350 million tonnes.

The provisions for effective connections to the ports as part of a mission to raise port related movements to nearly 300 million tonnes as against the present movement of 150 million tonnes could see a substantial rise in container movements involving items of high value. This specific strategy on the port front is based on the assumption that beneficiaries would provide the traffic guarantees though it is far from clear what the source of such guarantees could be. A useful question would be: is some form of an annuity model for the railways being worked out? To aid this entire process are the dedicated freight corridors (DFCs) on the golden quadrilateral which are expected to be in place soon and intended to permit heavier axle loads thereby permitting higher wagon loadings. Moreover, technological changes are being sought to be implemented with a view to improve wagon design and capacity to achieve higher payloads.

With a monopoly of supply of rail services, in the past, the Indian Railways had failed to make radical changes in services provided in order to make them more attractive. At the same time, the scale of public service obligations imposed by the government without any real or full compensation for the financial impact of such obligations, damaged operating revenues and reduced the investment capacity of the railways. However, recognition of the need to effectively face competition from other modes especially road transport has dawned upon the railways in recent years.

march 15, 2008

EPW
Economic & Political Weekly

COMMENTARY

As a result, a more effective business strategy is being planned and implemented with a focus on generating more surpluses based on efficient usage of capacity while, at the same time, taking into account user needs. The use of commercial success as a sole criterion for decision-making may not be feasible or even desirable since a developmental role for the railways is still substantial especially in a country like India. As a sole shareholder, the central government has a major responsibility in outlining this role clearly and to provide the necessary support for enabling the railways to play this role effectively, in addition to being an effective partner in the multimodal transport system that is required to meet emerging requirements.

Economic & Political Weekly

EPW
march 15, 2008

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