With net revenues estimated to be Rs 3,433.1 crore in the current year (actuals this year will be even lower than estimates), it's already a little hot under the collar.

There are just two options: Cut investment or get into a high growth trajectory. Within the Railway Board too there are two schools of thought. One that feels that the railways should grow at the pace allowed by budgetary support. Another that feelsthat the railways should take a business risk, borrow expensive funds if they have to and aim for high growth.

There is reason for the first more conservative school of thought. In the past, with every passing year, the railways have become more politicised, forced into taking investment decisions that no banker would have backed. They feel that the current environment will not allow for policies aimed at earning high rates of returns for railway projects (a prerequisite if funds are borrowed at higher rates of interest). In short, if a new line has to be constructed because an MP wishes, then it is best that the railways pay only seven per cent and never have to return the capital.

The second, less risk averse school of thought thinks the gamble with high cost funds is worth it. World Bank or ADB funds, if accessed directly, would cost 14 per cent after factoring in the foreign exchange risk. Bureaucrats feel that there are several projects with extremely high returns provided they are alloweddifferential pricing to recoup investment faster. Whichever school of thought wins the day, Rail Bhavan has already got into clean up mode. Investment decisions taken in the past have not been the best ones.

Estimated to cost Rs 19,330 crore, the new lines at the current level of funding will take 40 years to complete, and of these only 10 percent are financially remunerative. The railways are now trying to do the best they can of a really bad situation. The prioritisation of new lines has been completed, and cabinet approval for this has already come. Says D.P.Pandey, executive director, planning,"We will complete all operationally required projects." Read as: those needed to boost earnings. Projects in the north east - funded entirely by budgetary support are next on the list, followed by major bridge projects which will cost over Rs 1,000 crore. Socially desirable (demanded by MP) are last on the list.

But in what is now emerging as a very positive trend are the new partners sharing the railwaysdevelopment burden. Take the private sector port promoters. A year ago, two private ports, Mundhra, developed by Adani and the Gujarat Pipavav Port (GPPL) approached the railways for broad gauge connectivity to the main transport routes. Last week, the Indian Railways got into a joint venture with GPPL to execute the Rs 350 crore project, in which the railways would put in Rs 200 crore and GPPL Rs 150 crore on a BOLT basis at a 12.5 per cent rate of return. To cover the business risk, should cargo not materialise, the railways have the option of not paying the guaranteed return if cargo falls below 2 million tonne a year. A similar agreement is expected to be signed for Mundhra.

State governments are also taking on the development burden, helping the railways to drastically cut their investment needs. The Orissa Mining Corporation has entered into a joint venture with the railways and an Australian mining firm to develop a line from the mine to the nearest railhead. The state government has a 26 percentstake in the project.

Likewise the UP government, keen to see higher levels of manufacturing activity declared that they would take a 26 percent stake in all new lines aken up in the state.

A major component of the railways fine-tuning of finances will be cost reduction. As RK Jain, member, perspective planning, say,"we have failed to keep our costs competitive." An area of concern are the wage costs which constitute 58 per cent of total costs. The IR employs 15.8 lakh people. According to a World Bank report, this could be cut by 4 lakh. Under Government rules, no VRS can be offered. The only way out is natural attrition. The railways have therefore stopped recruitment and natural attrition is reducing staff strength by about 2.5 per cent each year. Yet as the railways moves into uncharted territory they may need to recruit skills they do not have. But as one source says," For every island that is undermanned, the Railways has continents which are overmanned."