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Railway Budget: Lack of a Long-term Strategy

A discussion of the Railway Budget for 2009-10, Mamata Banerjee's first exercise in her second stint, which shows the absence of a long-term perspective.

COMMENTARY

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Railway Budget: Lack of a Long-term Strategy

S Sriraman

A discussion of the Railway Budget for 2009-10, Mamata Banerjee’s first exercise in her second stint, which shows the absence of a long-term perspective.

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

M
uch has happened since Mamata Banerjee’s last stint as the minister for railways. Lalu Prasad Yadav’s express movements are supposed to have brought about a complete turnaround of the Indian Railways’ physical and financial performance. The “success” story has initiated widespread d ebate and divergent opinions have emerged. Based on hard facts presented to us over a fiveyear period, it must be admitted that success was more real than apparent. Further, it was somewhat clear that the longterm growth path of the railways seemed to have been reasonably well charted out. With the main railway budget presented last week, the issue is whether such a strategy gets reflected in its proposals.

It is to be noted that the focus once more in the Railway Budget for 2009-10 is on the passenger. Once again, no fare i ncreases have been proposed, reinforcing the trend in greater subsidisation of p assenger movement by freight. It has been pointed out o ften in the past, especially in these columns, that there is a lot of potential to earn more from passenger movement without really hurting the lowincome traveller. To reiterate, the longdistance passenger traffic consists mostly of higher income groups who will not move away from the railways in the absence of a credible alternative.

One feature in the budget relating to passenger fares is the provision of a monthly season ticket for Rs 25 to people below a certain income. While the

o bjective is laudable, there are serious p roblems. One could relate to the administration of the scheme and another relates to the possible addition of huge numbers who will join and undertake trips, which are inconvenient, uncomfortable and unsafe.

Constraint on Freight

While introduction of new train services would surely help, it is well known that the saturation limits have already been reached long back especially on the main corridors. The introduction of a large number of new trains is becoming a routine feature of almost every budget. While this is important in the case of longdistance movement, it adds to the burden in terms of cross-subsidisation and also as a constraint on higher freight movement. In this context, it is useful to question the proposed introduction of non-stop trains over very long distances, which would mean taking away quite a number of freight train paths.

The attempt to talk of world-class s tations is not justified when we are not even able to talk of clean, usable stations. Passengers often complain of poor hygiene in regard to the services at the stations i ncluding food. It would be useful to u pgrade basic facilities before attempting to provide entertainment and communication facilities on trains.

On the freight front, given that there has been a shortfall of loading, according to the revised estimates by 17 million tonnes in 2008-09, the minister has a ttempted to be more realistic by keeping the target for 2009-10 at 882 million tonnes. While this may reflect greater awareness of the present environment, one would have expected some specific e fforts that are required to be undertaken to achieve this revised target, given that the recovery of the economy is still slow.

july 25, 2009 vol xliv no 30

EPW
Economic & Political Weekly

COMMENTARY

The absence of a well drawn-out strategy could serve as a basis for more diversion to the highways. This is unfortunate as it results in higher costs to the economy. In the case of parcel traffic the budget proposes only a 40% growth over performance reported in 2008-09 while it is widely being recognised that this traffic that has a huge potential since it comprises goods – mostly high-valued items – which have abandoned the railways but were making a beeline back to this mode given a more proactive policy that was followed during the past decade or so. This policy needs to be pursued to provide the surpluses. It must be remembered that this traffic which got diverted to the roads over a period of time has proved to be very remunerative to truckers.

Having initiated moves to capture parcel traffic in a significant way, the railways should sustain this trend and get back high-value traffic which really provides the bread and butter. The attempt to tie up the Dedicated Freight Corridors with I ndustrial Corridors that are being planned could possibly further delay the processes that are required for the freight corridors to be put in place. In fact, it is a widely recognised feeling that these freight corridors ought to have been in place long before the conceptualisation of the golden quadrilateral of highways that is almost in place now. That would have enabled the economy to move goods at far more lower cost than those possible on the highway.

The past five years have seen a turnaround of the railways based on cost r eduction strategies as a result of higher a sset utilisation, etc. What ought to have been done much earlier gave rise to the hope of the railways being once again a dominant mode especially in bulk movement so that all the benefits of a low cost mode would accrue to the economy in general. However, it is felt that a far more dynamic strategy that would involve fare rationalisation, focus on the bulk movement, renewal of equipment, etc, is n eeded urgently.

A fairly close look at the budget reveals no attempts to propose such a strategy. In fact, the strategy appears to be one that aims at a certain consolidation based on traditional characteristics of the

  • o rganisation. One such feature has been the vertically integrated nature of the
  • o rganisation which is sought to be e ncouraged by a proposal to set up a power plant in partnership with another public sector organisation. While this may be i nterpreted to be falling within the idea of the framework of public-private partnerships, the idea of setting up medical and nursing colleges among many others could continue to keep the organisation away from its focus areas, namely, operation of goods and passenger services. It must be noted that the proposal to use railway land for setting up of logistics hubs for use by the private and public sectors is a good one since it would help in traffic consolidation at different places and help the railways get back their dominant position. But, it may not be advisable to encourage such hubs within urban areas since this could further exacerbate the traffic situation especially in cities like Mumbai where there is a lot of free railway land.
  • When we look at some of the figures that could be indicative of proposed strategies, they are disappointing. Traditionally, the railways have never given the right place to depreciation in terms of the appropriations made each year. Since the 1980s, this situation changed for the b etter though provisions continued to fall way below expected sums. This has resulted in huge accumulation of a rrears in terms of track and equipment r enewals, which is still a major challenge for the o rganisation.

    Disappointing Figures

    It is observed that the provision for depreciation according to the revised estimates for 2008-09 was Rs 7,000 crore while the budget has reduced this to Rs 5,325 crore for 2009-10. Further, if we look at the funds for appropriation to the Capital Fund, it is observed that there is a huge reduction – from Rs 5,000 crore (2008-09 revised estimate) to Rs 642 crore. This fund provides the basis for the internal component of the resources generated during a particular year for capital e xpenditure (Plan). It is observed from budget documents for the past decade or so that in terms of major developmental activities such as electrification, track r enewals, acquisition of rolling stock (coaches, locomotives and wagons), the achievements have been significant with the targets being met or even exceeded. A drastic reduction in funds for capital e xpansion surely reflects the lack of a long-term strategy to meet emerging r equirements and would once again lead to significant arrears. Also, this will r equire a larger borrowing from the open market which would mean an alternative source of funding but at a higher cost to the railways. Over a period of time, the railways have depended less and less on the central exchequer while at the same time improving internal resource generation and keeping borrowing within t olerable limits.

    Regardless of their efforts to improve the quality of their services, it is often observed that the railways have not adopted an effective customer orientation policy to ensure that the potential users are aware of the service improvements. In this r espect it can be rightly argued that they have much ground to make up because they have frequently failed to anticipate user needs and have been merely content to make some technical advances without really querying whether the improvements meet the needs of customers. The services proposed must be both rational and targeted. Moreover, while projecting themselves, they need to highlight the a reas where they differ from other modes in

    o rder to draw attention to their strengths. It is hoped the White Paper that the minister has promised to come out with will very soon reflect a definite strategy to put the railways on a long-term path and this truly gets incorporated into successive budgets. Let us hope that the present bud get is only a short-term aberration.

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    Economic & Political Weekly

    EPW
    july 25, 2009 vol xliv no 30

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