S. D. Naik

Despite the welcome initiatives over the past two to three years, the backlog of modernisation in the Railways is huge. Considering the enormous investment required to bridge the technological gaps, there should be many more public-private partnerships.

The Prime Minister, Dr Manmohan Singh, aptly described the Railway Budget for 2006-07 as `forward-looking'. For, it marks a welcome departure from the practice of continuously seeking higher budgetary support from the Central Government. To derive maximum benefits from higher economic growth, the emphasis has now shifted to better utilisation of assets by adopting modern business practices.

Deviating from the practice of hiking rates to make money, freight rates were rationalised last year to reduce the cost of carry for a range of commodities, and discounts were offered to attract customers. The twin strategy of raising wagon axle load from 20.32 tonnes to 22.9 tonnes on select routes and improving wagon turnaround time has yielded handsome dividends.

Consequently, freight loading and revenues increased by 10 per cent and 18 per cent respectively during the first nine months of 2005-06. The strategy will continue in 2006-07. Encouraged by the performance in the first three quarters, the freight loading target for 2005-06 has been increased from 635 million tonnes to 668 million tonnes, and the freight revenue target from Rs 33,480 crore to Rs 36,490 crore.

Better wagon use

A series of innovative measures initiated since the second half of 2004, such as better utilisation of rolling stock, helped the Railways improve its operating ratio significantly — from 91.0 per cent in 2004-05 to 83.7 per cent in 2005-06. The ratio had touched 98.3 per cent in 2000-01.

The record freight haulage during the year was largely due to the better utilisation of the 2.5 lakh wagons; fleet utilisation improved from 60,000 wagons per day in 2001-02 to 75,000 in 2004-05, and 84,098 in 2005-06. There is scope to further improve wagon use by leveraging information technology.

Improving the wagon turnaround time and increasing load capacity on select routes also helped the Railways accommodate the surge in volumes generated by higher economic growth. Evidently, the `increase-volumes-reduce-unit-costs' strategy adopted in recent years appears to have started yielding rich dividends, thanks to the overall pick-up in the growth rate of the economy.

Dynamic pricing policy

As an extension of the same policy, the Rail Budget for 2006-07 proposes to introduce a Dynamic Pricing Policy for freight as well as passenger services for peak and non-peak seasons, premium and non-premium services, and for busy and non-busy routes. The freight rate for petroleum products has been cut by 8 per cent. As a continuing reform measure, commodity groups have now been reduced from 80 to 28. In the last Budget, they were reduced from 4,000 to 80.

To meet the competition from budget airlines, it has been decided to reduce AC 1st Class fares by 18 per cent and AC 2nd Class fares by 10 per cent. The growth target for passenger and parcel business during 2006-07 has been raised to 11 per cent.

Encouraged by the all-round improvement in performance during the current year, the freight target for the next fiscal is 726 million tonnes. The revenue mobilisation from freight movement during 2006-07 has been projected at Rs 40,320 crore, an increase of 10.5 per cent over 2005-06. Passenger earnings during 2006-07 have been estimated at Rs 16,800 crore. The gross traffic receipts for 2006-07 have been projected at Rs 59,978 crore, representing an increase of Rs 5,278 crore over the previous year. The turnaround in railway finances has indeed been dramatic with internal generation of resources expected to touch a record Rs 14,293 crore next fiscal. In 2001 the Fund Balances had plummeted to just Rs 350 crore and the department had to defer dividend payment to the Government. The Fund Balance increased to Rs 11,000 crore by 2005-06 and is projected to rise to Rs 12,819 crore by the end of 2006-07.

Huge Plan outlay

On the back of the strong financial performance, the Railways has proposed the largest ever Annual Plan outlay of Rs 23,475 crore for 2006-07 — a big jump of 32 per cent over the previous year, excluding the outlay provided for national projects.

As much as Rs 10,794 crore of the Annual Plan will come from internal generation of resources. The thrust of the Annual Plan will be on early completion of throughput enhancement works, safety, and development and expansion of the network.

Picking up from last year's Rail Budget, it is now proposed to construct a Dedicated Multimodal High Axle Load Freight Corridor with computerised control on Western and Eastern routes at an estimated cost of Rs 22,000 crore. This major decision will prove a boon to the Railways in the coming years. The initiative will go a long way in enabling the Railways cope with the anticipated growth in freight traffic on busy routes as also from and to ports, particularly in containers. It is to be hoped that the execution of this ambitious project will be put on fast track to ensure its early completion.

Despite the welcome initiatives over the past two-three years, the backlog of modernisation is huge. Considering the enormous investment requirements to bridge the technological gaps, it would be necessary to go for public-private partnership on a much bigger scale. Fortunately, the Railway Ministry is already moving in that direction.

The Railway Minister, Mr Lalu Prasad, appears to have stopped short of big-ticket reforms. For instance, he missed a good opportunity to significantly reduce the cross-subsidisation of suburban and lower-class fares by freight. At least a moderate increase in these fares was necessary in the context of rising fuel costs and a number of additional passenger amenities proposed in the Budget.

Long way to go still

It needs to be emphasised that we are nowhere near providing a world-class system in terms of speed, travel comfort and safety. While the signals are, no doubt, encouraging, continued efforts are called for to ensure steady progress. The Railways must make more investments to de-bottleneck its existing assets to generate more returns.

Also, there is no denying that the Railways continues to remain heavily overstaffed. A World Bank study comparing the highway and railway development in India and China during 1992-2002 points out that the average output per employee of the Chinese Railways is 2.1 times that of his Indian Railways counterpart. The Indian Railways' staff costs account for 53 per cent of the working expenses compared with 25 per cent in the Chinese Railways.

Moreover, to increase efficiency in freight carriage, changes in wagon design and use of lighter materials such as aluminium are long overdue.

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