Indian Railways as a global player

Written by Rajiv Kumar | Updated: Feb 27 2008, 03:16am hrs
Indian Railways is on a roll. The minister justifiably started his budget speech with the announcement of a cash surplus before dividends of Rs 25,000 crore in 2007-08, compared to Rs 20,000 crore in 2006-07. Over the last five years, a total surplus of more than Rs 65,000 crore has been generated. This is quite a turnaround from a situation not long ago where it was unable to even declare a dividend. Not surprisingly, the railways and its minister have become case study in international management schools. Without wishing to take anything away from this splendid achievement, I do wish to point out that the growth in earnings in 2007-08 of both goods and passenger segments were 14%, just in line with the economys nominal growth rate. This is not, then, an exceptional performance. Merely that it is started keeping up with the rest of the economy at last. Good, but hardly anything to be complacent about. This implies that despite its good showing, the Railways has perhaps been unable to increase its share in total goods and passenger traffic. It would have, therefore, been better if the railway minister had given us an indication of performance vis--vis other means of transport (like road and civil aviation). It is important both from an economic and ecological standpoint to ensure that rail traffic increases its share of overall traffic in India.

Given that passenger traffic continues to be cross-subsidised from revenue generated by goods traffic, there seems to be little justification for the reduction in passenger fares that has been undertaken annually. We cannot quarrel very much with a reduction of Re 1 per passenger for fares upto Rs 50. However, the reduction in AC First Class and AC Second Class fares and a 5% discount across-the-board for Second Class passenger fares above Rs 50 can hardly be justified. The objective of attracting more passengers from low-cost airlines could have been achieved by speeding up trains further, as time is the crucial element for weaning passengers away from air travel. This has become amply clear from the European experience, where the French TGV and the Franco-British/Eurostar have eaten into the airline traffic primarily by reducing travel time.

The reduction in freight charges, nominally by 5% in case of petrol and diesel and higher for fly ash and incremental traffic booked from good sheds and private sidings, is welcome, however. This will reduce industry costs and make Indian producers more competitive. The 6% concession on traffic booked for stations in northeast India is a symbolic gesture that nonetheless is welcome.

This is indeed a popular (populist) budget, but even here, the tenfold increase in the per capita contribution to the railways staff benefit fund is a real surprise. A number of concessions were announced perhaps to enhance the ministers electoral appeal. These include free monthly season tickets for girl students upto graduation and boy students upto 12th standard; 50% concession for lady senior citizens, increased from 30%; concession to Ashok Chakra awardees along with the existing winners of military valour awards; 50% concession to Aids-affected persons; and the running of a Mother-Child Health Express in collaboration with Rajiv Gandhi Foundation!

While one cannot question the ministers right to award these handouts, in light of the surpluses being generated, it may have surely been better to allocate greater funds to capital investment for modernising and upgrading railway infrastructure. This is necessary because the Indian Railways, though a matter of pride, lags badly behind its counterparts in several parts of the world.

In this context, it is reassuring to hear that construction work on both the western and eastern dedicated freight corridors will commence in 2008-09. It is my hope that similar high-speed corridors both for passenger and freight traffic will be considered for other regions as well. The investment of about Rs 75,000 crore over the next seven years to augment line capacity on high-density traffic lanes is commendable. However, I am a bit disappointed at the inclusion of both the eastern and western corridors within this allocation. This would actually imply that only an additional Rs 15,000 crore will be spent on other projects over seven years. This is not going to be enough to upgrade and modernise capacities on these high-density routes.

Indian Railways represents one of the countrys greatest competitive strengths. The combined network of goods and passenger services, production facilities for locomotives and rolling stock, and all the other related services constitute a system which is perhaps unique in the world. Given its present size and its expected double-digit growth for the foreseeable future, Indian Railways and its allied sectors can emerge as a globally leading sector for India.

It is, therefore, important that the government focuses more attention on technological development and modernisation so that the benefits can be fully exploited. It is time now to set our sights on the global railway market!

The author is director & chief executive of Icrier, a Delhi-based thinktank, and member of Indias National Security Advisory Board