Putting railway reform on the fast track

Written by AV Poulose | Updated: Feb 25 2009, 04:16am hrs
Indian Railways seems to be heading for a period of dwindling freight traffic and increasing operating ratios. The interim Budget of February 13 points to the uncertainties confronting the railways. The surplus, before dividend, shrinks to Rs 18,847 crore and the operating ratio shoots up 89.9%. The downtrend in freight traffic last October and November did cause concern, but hope revived with improvements in December and January.

The good news is that the last four years yielded a cash surplus of Rs 90,000 crore, but the Sixth Pay Commission denied the coveted figure of Rs 1 lakh crore. A substantial portion of this has already been used up through various funds to which the surpluses were allocated. The total closing balance under these at year-end is estimated at only Rs 13,323 crore.

The question then is how was all of this achieved The railways contributes to, and benefits from, economic development. Its dream run in the recent past owed a lot to the 9% GDP growth in three successive years. Innovative operating and pricing strategies ably supplemented this. The political leadership deserves credit for its vision, allowing the system to function without interference, and putting the right men in the right positions.

I can vouch for the fact that all the earlier reports of expert committeesthe Rail Tariff Enquiry Committee (Paranjpe Committee), the Railway Reforms Committee (Pande/Sarin Committee), the Railway Fare & Freight Committee (Nanjundappa Committee) and the Capital Restructuring Committee (Poulose Committee)were dusted down.

Hitherto ignored recommendations relating to dynamic pricing, discounted pricing for loading in empty movement directions, upgrading of passengers to higher classes and so on were introduced, with beneficial results. But the railways has run out of ideas. Its stock needs to be replenished through widespread consultations with users and stakeholders, and with the help of expert review committees.

Although the railways has claimed not to have raised passenger fares and freight rates, charges have been increased both for passengers and goods. As pointed out by the Comptroller & Auditor General of India, additional charges are collected from passengers through higher reservation, cancellation and tatkal booking charges. Similarly, frequent revision of the classification of goods like coal, iron ore, cement, dolomite and foodgrain, as also charging goods up to 10 tonne in some sections beyond the marked carrying capacity of wagons, have yielded additional goods earnings.

All these point to the need for a review committee. The major rail usersin the cement, iron & steel, petroleum, foodgrain and fertiliser sectorshave urged the need to restrain the railways, and the Planning Commission has been pressing for a regulatory body. To bring about credibility among customers, it is essential that a fare & freight enquiry committee be set up immediately. The last such committee had reported as far back as in December 1993.

There is also need for faster implementation. A major initiative announced by the railways was the construction of dedicated freight corridors, eventually segregating freight and passenger traffic. Although an SPV is in place and work on the eastern sector has been inaugurated, much remains to be done. Recently, there were reports that a standard PPP concession agreement is under consideration and that it had raised some dispute between the railways and the Planning Commission. This needs to be settled by intervention at the apex level so that works under PPP are not delayed.

Other projects handled through Rail Vikas Nigam need to be implemented quickly, since infrastructure building is a crucial component of the economic revival efforts. PSUs should be patterned on DMRC and should be free from unnecessary interference. The railways should also be able to claim viability gap funding from the government for some projectsas pointed out by the new finance minister, public funds should not be for increasing private profits.

Then there is the question of high-speed passenger trains. Bullet trains could be considered for the sake of acquiring and mastering the technology. But they cannot be introduced except in a section or two because of the exorbitant costs involved. It cannot, however, be avoided on grounds of cost alone. We did undertake the moon mission despite the costs, but Chandrayan cost much less than programmes elsewhere. We need trains at say 250/260 kmph to meet competition from other modes of transport for survival. Studies proposed by the railways should help settle this issue.

There is also a need for accounting reforms. A couple of years ago, a whole page of the Budget speech was devoted to accounting reforms in the railways. A consultancy arrangement was also finalised. Since then nothing has been heard of it. Accounting reforms and the introduction of an acceptable costing systemin place of the present elementary one of passing off an apportionment of expenditure under different headsare essential to set up a proper pricing scheme and cost-control mechanism.

To conclude, one can say that the railways needs to canvass for and retain additional traffic, through pricing and operating innovation, improving quality of service both in passenger and freight traffic, and getting other modes of transport to complement rather than compete so as to survive in the short and medium terms. In the long run, the dedicated freight corridors and high-speed passenger services need to be operationalised to provide additional capacity.

The writer is a former financial commissioner, Indian Railways, and secretary to the government of India