On Tuesday, Lalu Prasad had his moments of joy, playing to the gallery. There were enough fare cuts to go around, winning him approval from far beyond the treasury benches. This generosity was enabled, of course, by the Railways financial performance, which has bounced back so strongly that the entire Indian public sector seems to be basking in the possibilities of state-ownership in perpetuity. In recent years, the Railways has been one of the very few government fields of operation that has maintained its share of GDP, even as the role of the overall public sector has rapidly shrunk. The dynamism of the railway minister has had something to do with this, especially in empowering the rail bureaucracy to throw out some dog-eared operating manuals to suit the ministrys expansionary objectives. This business-like pragmatism set into motion a chain of commands that led to several constraints being re-examined and done away with. In all, there has been a renewed focus on boosting earnings, and the results have indeed exceeded the expectations of even the most diehard optimists. The cash surplus before dividend, as announced, for 2007-08: Rs 25,065 crore.
The economic boom, and the momentum generated by it, deserves a big thank-you note, of course. As for lingering doubts about the sustainability of the performance and its vulnerability to cyclical trends in the economy, 2007-08 was a good test year. Both GDP and exports showed mild slowdowns, and the Railways upper-end passenger market was seized upon by aggressive competition from no-frills air carriers offering discount fares galore. From the 2007-08 figures presented by the railway minister, it is clear that pessimists have been a bit too harsh about the fragility of the turnaround. The slowdown has not affected railway finances so far. The budget estimates have been bettered on several counts other than the cash surplus.
Yet, the engine could still lose steam in 2008-09, going by emerging trends. Look at 2007-08s numbers a little more closely. While both freight volumes and passenger numbers exceeded budget projections, things did not go exactly as planned. In fact, the specific targets set for many of the bulk goods (the big earners) went widely off the mark. This was mainly because of unrealistic freight pricing and budgetary expectations. In such cases as iron ore, the frequency of rate changes was surreal, to say the least. Anyhow, while the carriage of coal met budget projections, that of raw materials to steel plants, foodgrain, fertilisers and cement missed targets. But the gains from the larger than anticipated pickup in pig iron, finished steel and export iron ore freight more than made up for this. Similarly, passenger earnings were boosted by the growth of the non-suburban segmentwhich grew faster than expectedeven as the larger suburban segment fell marginally below budget targets.
In all, the going has been good. Take away depreciation and the interest earned on railway funds, and the operating surplus for 2007-08 is Rs 13,534 crore. This is about Rs 2,000 crore more than the budget projections for the year, and offers us a look at the operating ratio. This is the proportion of revenues absorbed by expenses, and has come down to 76.3%, which is 3.3 percentage points below the budget projections for the year and the best in the last four decades. However, this ratio is projected to rise to 81.4% in 2008-09. This will signify the first reversal in a steadily improving trend in over eight years. By projections, the increase in volume of freight and passengers has been largely left at the same levels as the previous year, and growth of earnings from traffic is projected to fall marginally. This, together with the ad hoc provision of Rs 5,000 crore to meet Pay Commission recommendations, will reduce the surplus in 2008-09for the first time under Lalu Prasadby about Rs 2,000 crore.
The big question, at the end, is the public sectors sense of self-perpetuation. While Indian Railways has done well, this should not be taken as fuel for fantasies of public sector predominance in the economy for decades to come. It is reassuring that the ministry is looking towards private investment to make the breakthroughs it now needs. In fact, the most exciting figure is the Rs 1,00,000 crore target for public private partnerships over the next five years. Realism must reign.