The Hindu Business Line : Railways: Dream run, new challenges

The interim Rail Budget, presented by the Railways Minister, Mr Lalu Prasad, the sixth in a row after the five regular budgets, highlights the turnaround story and a dramatic transformation of an ailing behemoth into a profit-making enterprise generating healthy cash surpluses. From a loss-making entity that had defaulted even in the payment of Rs 2,800 crore as dividend in 2001-02 after the implementation of the Fifth Pay Commission recommendations, it has been able to ge nerate cash surpluses totalling nearly Rs 90,000 crore over the last five years.

Cash surpluses

Since 2004, the Indian Railways has witnessed a dream run generating a cumulative cash surplus of Rs 68,778 crore, on average Rs 17,194 crore a year, and the interim Budget expects that the current fiscal is likely to end with a surplus of Rs 19,320 crore. Thus, the cumulative surplus over the past five years is expected to exceed Rs 88,000 crore.

The dramatic turnaround and the impressive generation of cash surpluses enabled the Railways to raise a $100 million loan at four per cent from the international market last November. This should provide a much-needed boost to its forthcoming investment programme.

Mr Lalu Prasad, no doubt, deserves credit for the dramatic turnaround of the Railway finances over the last five years. It needs to be noted, however, that the performance of the Railways has been on an upward curve since 2002-03, even before Mr Prasad became the Railway Minister.

Some of the measures to improve the efficiency of the system were initiated by Mr Nitish Kumar, the former Railways Minister during the NDA regime. These included measures for infrastructure renewal, trimming of excess staff and viewing Railways as a commercially viable enterprise, and not a social service.

No less important was the decision taken in 2001 to create a non-lapsable Rs 17,000-crore Special Railway Safety Fund through a one-time Central Government Grant of Rs 12,000 crore and the imposition of a safety cess on passengers to mop up Rs 5,000 crore. Further, it was decided in 2003, to provide extra budgetary support of Rs 15,000 crore for the Rail Vikas Nigam to strengthen the Golden Quadrilateral. These two measures helped the Railways improve its asset quality and load-bearing capacity.

On assuming office in 2004, Mr Lalu Prasad provided a further impetus to the improved performance of the Railways by bringing in an Officer on Special Duty to study the overall working of the system and push through the much-needed reforms. Fortunately for him, the economy entered a higher growth phase, when the Railways had already equipped itself to handle the growth in traffic in a booming economy.

The emphasis over the past few years has been on better utilisation of existing assets and dynamic pricing. For instance, a substantial increase in freight loading was made possible by increasing the axle-load of wagons, reducing the wagon turnaround time from seven days to five days, ensuring longer and extended run by freight trains and extending the daily hours for wagon loading.

Impact of slowdown

In view of the ongoing economic slowdown following the global financial turmoil and recessionary conditions, the road ahead is going to be arduous and the Railways will have to overcome new challenges to stay on track. Indications are that the Railways may not be able to achieve the freight loading target of 850 million tonnes fixed for this fiscal.

Up to December 2008, the Railways could manage to load only 606 million tonnes against the targeted 627.85 million tonnes. With industrial production and exports showing a downward trend, the last quarter of the fiscal (January-March) could be much worse for the economy. The projected freight loading target of 910 million tonnes in 2009-10 also appears beyond reach.

Consequently, the projected gross traffic receipts at Rs 82,393 crore during the current fiscal and Rs 93,159 crore for 2009-10 may also not materialise. The same will be the case with regard to the projected cash surplus before dividend at Rs 19,320 crore in 2008-09 and Rs 18,847 crore in 2009-10.

It is a matter of concern that the operating ratio, which was brought down to 75.9 per cent last year after relentless efforts for four years, has begun to climb again. It is estimated at 88.3 per cent for 2008-09 and 89.9 per cent for 2009-10. In all probability, it could deteriorate even further at a time when the Railways will have to incur an additional expenditure of Rs 13,500 crore (Rs 9,000 crore towards staff salaries and Rs 4,500 crore towards pensions) for implementation of the Sixth Pay Commission recommendations.

The challenge is going to be all the more formidable, given the huge investment requirements of Rs 230,000 crore during the Eleventh Plan, which is almost three times the amount allocated during the Tenth Plan period.

The heavy investments are needed for enhancing the capacity of rolling stock, technical upgradation and advancement in technology to achieve the ambitious targets set for the passenger and freight business segments.

Against this backdrop, the Minister should have resisted the temptation of going in for populist measures in an election year such as the across-the-board reduction in passenger fares by two per cent, introduction of new trains and the takeover of the ailing Burn Standard in West Bengal. This will only stretch the Railway finances further. Unless the trend of rising operating ratio is reversed with concrete efforts and some innovative thinking to diversify the freight business beyond its narrow base of bulk commodities, the Railway finances may derail once again before long.

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