Prior to Modi taking charge 20 months ago, successive political establishments have used Indian Railways to pander to their respective constituencies [play vote bank politics] making grandiose announcements on new trains and reducing passenger fares. They showed unconscionable apathy towards the impact of such largesse on the finances of this behemoth and its ability to deliver on quality services to users and expanding its asset base for meeting requirements of growth.
The net result of this cumulative populism has been increasing operating ratio [proportion of revenue used on expenses] touching close to 100 in some years and measly sums left for investment in maintenance, augmentation, modernization and safety of assets. The governments of the day also denied it requisite budgetary support. Even borrowings were used mostly for meeting revenue deficit leading to high interest burden.
If, you persistently neglect the assets pushing them in to a dilapidated state, this will inevitably impact the quality of services and even worse make trains prone to accidents. Indeed, we see this happening with high frequency. Juxtaposed with increase in freight [to offset loss due to low passenger fare], this has also led to loss of goods traffic to roads. The share of rail in total freight traffic registered a steep decline from 62% in 1980 to 36% in 2012.
In this backdrop, in the budget for 2015-16, railway minister, Suresh Prabhu pledged to dismantle the cult of populism and promised to transform rails in to an entity that truly provides the backbone infrastructure for growth and is financially self-sustaining. So, he unveiled a 5 year road-map for massive investment of about Rs 880,000 crores in all critical areas to what he euphemistically described as “decongest” the system.
The investments were planned in laying of new lines, conversion of existing meter-gauge lines to broad-gauge, augmentation and modernization of signalling equipment, building over-bridges, eliminating the scourge of un-manned level crossing, fast completion of two dedicated freight corridors, renovation and up-gradation of stations etc. This was truly an unprecedented effort never even thought through by previous dispensations.
Prabhu has indeed walked the talk. During 2015-16, capital expenditure is estimated to be Rs 100,000 crores which is more or less close to the target set in the budget. Even as the budgetary support was only one-third, he mobilized remaining amount from internal and extra-budgetary sources [EBR] including loan from Life Insurance Corporation [LIC] – Rs 30,000 crores being the first tranche out of a total Rs 150,000 crores committed over 5 years.
There was shortfall in earnings – in both freight and passenger segment – by about Rs 15,000 crores. Yet, the minister did not let this cause major slippage in operating ratio [OR] [actual is 90 as against target of 88.5]. He has saved substantial sums using innovative methods for purchase of electricity [buying from trading platform at competitive rates instead of being tied down to agreements with state electricity boards (SEBs)] and even garnering money from sale of scrap.
During 2016-17, the minister steadfastly continues with the philosophy of building on the momentum of investment. Accordingly, he has proposed to increase the capital spend by 21% to Rs 121,000 crores. The two consecutive years of investment in excess of Rs 100,000 crores is a major break-away from the past when average annual capital outlay during 2009-14 was Rs 48,000 crores.
The government has stepped up budgetary support to Rs 40,000 crores. As regards the balance, Railways will get over Rs 18,000 crores from joint venture [JV] projects to be implemented in collaboration with states and Rs 20,000 crores bonds to be issued by Indian Railways Finance Corporation [IRFC] and Rail Vikas Nigam [RVN]. It is expecting about Rs 21,000 crores from institutions and multilateral funding agencies.
Prabhu has left fares and freight rates unchanged. This is despite a huge liability of around Rs 40,000 crores [including arrears] due to implementation of seventh Pay Commission recommendations [no wonder, OR for 2016-17 is projected to be 92 even higher than current year]. It demonstrates his commitment not to put any additional burden on passengers and industry & trade and yet, continue to unclog/decongest rails by taking recourse to innovative means of financing investment.
All investment measures contemplated in the budget are guided by over-arching philosophy of “decongesting’ the rails and making it the “backbone” of country’s infrastructure. These include proposal for 3 more dedicated freight corridors [in addition to 2 already under implementation], providing better connectivity of ports to the rail network, focus on holistic logistics for seamless transportation of goods from major industrial centres, transforming Chennai in to an automobile hub, boost to container traffic etc.
Likewise, providing better and more facilities, conveniences and safety to commuters resonates all through the speech. These include “Antyodaya” train over long distances for un-reserved passengers and addition of “Deendayal” bogies for them in existing trains, running of double-decker trains on busy business routes, increase in reserved seats for women and senior citizens, “cleanliness” of bogies/seats on demand, wheel chairs for handicapped on stations, all amenities/provisions for babies on stations, bio-toilets on stations and in trains, resurrection of ring rail in Delhi, enhanced safety in Mumbai suburban trains/platforms etc.
For boosting revenue, Prabhu has opened up a whole range of possibilities. At present, over 90% of the earnings come from freight and passenger traffic [within this, 2/3rd comes from former] even as other sources account for a small fraction. This will change dramatically with the ministry now determined to go whole hog for commercial exploitation of its real estate via giving land on lease, advertisement on stations/trains, leveraging personal information of millions of customers available with IRCTC [Indian Railway Catering and Tourism Corporation] etc.
The ministry is also serious about making its freight basket more diversified from the extant composition heavily focused on a few bulk commodities like coal, fertilizers, food grains, iron ore, cement etc. On the passenger front, the focus will be on linking charges to amenities/services. For instance, a business traveler won’t mind paying much higher rates if he can get to fruitfully use his travel time in a dedicated bogey equipped with modern facilities.
Prabhu has also divulged his intent to set up a regulatory authority which apart from fixing tariff to optimize revenue will also look at other issues on the interface especially of industrial users with the railways. This will help in instilling confidence and enable them to come forward for fruitful collaboration to mutual benefit [various such efforts in the past have failed mainly due to absence of an independent regulator].
Together with intensified efforts to save on operational expenses such as savings on fuel, reduction in cost of power [via increase in share of electrification and lower cost of purchased power] and efficiency improvement in other areas, the government can look forward to turning around the railways in to a self-sustaining commercial organization driving the wheels of economy.
If, Prabhu can sustain the momentum of investment as per the road-map laid in 2015-16 budget and results in all crucial areas unfold as planned [confidence level is high given the missionary zeal he is working], Indian Railways would have emerged as major partner in putting India on a double digit growth trajectory.