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Railway Budget 2001 -- Will it run on prudence track?

G. Srinivasan

COURTING controversy and being obdurate on issues dear to her are nothing new to the firebrand leader of the Trinamul Congress, Ms Mamata Banerjee. In keeping with her credentials as a simple leader with wider appeal and mass base, the Railway Minister, Ms Mamata Banerjee, has already kicked off a row by taking exception to the statement made by the Prime Minister, Mr Atal Bihari Vajpayee, that Railways have to necessarily raise fare and freight in the 2001-02 Rail Budget.

In all her confabulations with the Finance Minister, Mr Yashwant Sinha, and the Prime Minister, the hike in rail fare and freight was, at best, an unpalatable antidote for Ms Banerjee who is trying to resist option by seeking enhanced budgetary support o r deferment of dividend liability for the second year in a row. Social obligation of the system has been of paramount concern to the successive Railways Ministers who found in it a veneer not only to burnish their image but also to promote their backyard .

So, as Ms Mamata Banerjee stands to present her second Rail Budget, she might be compelled to couch her concern for the poor with some unpleasant doses of hike in fares, mostly passenger and to a limited extent on freight too, given the financial shamble s the Railways is in today.

It may not be off the mark to note that the Working Group on the Railways for the Ninth Plan had recommended the needs of funds of Rs 93,000 crore over 1997-2002. But the Railways had proposed an outlay of Rs 65,000 crore only to the Plan panel but this too was cut down to Rs 47,484 crore. But since the gross budgetary support extended to the Plan by the Government itself has not been on targeted level, slippage in allocation to sectors such as Railways is bound to supervene. Hence, the overall fund all ocation to the Railways for the quinquennium might not be what was indicated.

The compulsion of carrying the social cost and running the system on commercial lines has come to a point where the Government must perforce bite the bullet. The social cost is borne by the state in many railways elsewhere in the world. With the budgetar y support to the system on the wane, the Government can still take concrete steps by persuading the Railways to go in for rationalisation of tariff, mostly passenger, at least to meet the cost of service, put a ban on new lines that are sanctioned by Rai lway Ministers with little thought to the feasibility question, and defer dividend payment from general revenues for a few years, experts contend.

That the Railways has been in financial straits is well-known, given the low growth for freight traffic and escalating operating ratio right through the fiscal. The operating ratio has been budgeted at 98.8 for the current fiscal. But it is bruited that when provisional figures are shown at the end of the year this would go up. Already, the Railways has pared down its expenditure by 10 per cent, following shortfall in earnings, particularly from non-traditional sources of revenue.

It might be noted that a target of Rs 750 crore for mobilisation of resources from non-traditional sources was kept for 2000-01, comprising Rs 500 crore from the use of right of way for laying optical fibre cables, Rs 150 crore from commercial utilisatio n of land and airspace, and Rs 100 crore from commercial publicity at railway premises and on rolling stock. That the resource mobilisation from non-traditional route remains a non-starter was made clear during the course of the third-quarter when the Mi nister of State of Railways, Mr Digvijay Singh, said in response to a query in Parliament during winter session that ``the earning figures will be known only at the end of the financial year''. That the Ministry was unable to indicate or quantify what wa s already achieved during the first three quarters, speaks volume of the futility of anticipating any major gain from this unorthodox route to raise resources.

What is of serious concern is that the Railways had begun drawing down from its various development funds which would, in no time, render it unviable in terms of operations, and push the system into a serious debt trap. Already, internal resource generat ion capacity of the railways has been overstretched. Increased working expenses, consequent upon the implementation of the recommendation of the Fifth Pay Commission causing staff cost to go up from Rs 7,628 crore in 1996-97 to Rs 12,871 crore in 2000-01 (BE) and heavy lease payments because of market borrowings going up from Rs 1,469 crore to Rs 3,014 crore, together with slower growth in freight traffic, resulted in steep fall in the internal resource generation of the railways.

This warranted draw down from fund balances, including the Depreciation Reserve Fund (DRF) during the last three years to sustain the annual Plans. The DRF, which stood at Rs 1,432.27 crore on end-March 1998, fell precipitously to Rs 676.72 crore in 1999 and touched the nadir of Rs 76.72 crore on end-March 2000. The Railway Capital Fund during the same period saw a substantial erosion from a high of Rs 1,200.64 crore to a measly Rs 62.89 crore. Inclusive of Pension Fund, the total of Rs 3,565.23 crore a s on March 31, 1998 has been reduced to Rs 252.97 crore, which is likely to be Rs 113 crore at the end of this fiscal.

The Railways' Corporate Plan (1985-2000) made in 1989, spoke eloquently of enhancing the annual growth rate of freight traffic to five per cent against an average of 3.8 per cent achieved hitherto. But the good intentions of the corporate plan were blown away in no time when there was a marked shift in investment policy and priorities from need-based development designed to augment capacity on economic criteria to meretricious and populist schemes of promoting the vested and political interests of those in power during the early 1990s.

It is now clear that excessive emphasis on this scheme since 1992 has led to a drastic slowdown of real capacity augmentation, both infrastructure and rolling stock. Alongside, many unproductive schemes such as unremunerative new lines and creation of un warranted six new zones at an estimated whopping cost of Rs 671.9 crore, spread over 60 months, exacted their toll on rickety rail finances over the recent years.

No wonder that the rail finances are in parlous state and call for surgical response and root-and-branch restructuring and not tinkering in fringes, as is being ritually attempted every year. The Planning Commission representative told the Standing Commi ttee on Railways recently that both fare and freight rates need to be fixed, keeping in view the cost of operation which would not only reduce the financial burden on Railways but also lead to a greater allocative efficiency. The Plan panel official furt her suggested that the financial losses of new lines on account of metropolitan transport project should be met by all stakeholders, including State governments.

In similar tones, Secretary in the Finance Ministry told the House Panel on Railways that ``it will not be possible to subsidise Railways any further'' and ``on the other hand, Railways should raise the rate of dividend to General Revenue to a figure tha t is close to the average market borrowing rate of the Central Government''. In fact, the budgetary support is nothing but borrowing from the market, the Finance Secretary said, adding that our rate of interest is 12.13 per cent whereas the average divid end in 1999-2000 was 4.07 per cent. ``That means there is already that much of difference which is actually going to the Railways and we are not really recovering that'', he said, suggesting some rationalisation of the extant tariff structure and review of the portfolio of projects.

There is no dearth of remedies to put the finances of the system back on the rails, ranging from autonomy in the vital matter of pricing and investment to attempting by now orthodox means such as sale of surplus land and privatisation of various wings of the monolith transport system. What the World Bank has suggested a few years ago in one of its sectoral studies on Indian Railways has also been advocated by the Expert Group headed by Dr Rakesh Mohan, which plumped for restructuring of the behemoth wit h its several business structures being broken into smaller units. It is of the view that the core transportation business ought to be broken down into strategic business units (SBUs) with the cadre-based system sundered into departments based on discipl ines such as civil engineering and mechanical engineering and eventually restructured.

Even as Ms Mamata Banerjee skates on thin ice with hard options looming large and louder, she would go down well in her stewardship if she consciously ducks sops and moves ahead, even modestly, in the direction of restructuring the whole system with a vi ew to recapturing the Railways' rightful place as the ideal mode of eco-friendly transportation over the medium- to long-term.