World Bank tells railways to reduce cross-subsidies

New Delhi, Jan 27 | Updated: Jan 28 2005, 05:30am hrs
The World Bank has advised Indian Railways to review passenger fares so as to reduce cross subsidies and freight rates which would in turn lead to growth in the freight business.

A comparative analysis of highway and railway development in China and India between 1992 and 2002 done by World Bank shows that while average passenger tariff in India is 55% lower, freight tariff is almost 70% higher than China. Cost per unit in China is lower by 15% than in India.

The analysis was presented to the Prime Ministers Office (PMO) and Planning Commission on Thursday.

Listing out potential lessons for India from the Chinese experience, World Bank advised that the conflict between the Indian Railways role as a commercial organisation and one to serve social obligations should be resolved. The government should support the railways in making only financially viable investments and eliminate proliferation of politically attractive projects. It further suggested adoption of a modern cost accounting and information system to properly allocate costs to different lines of business. A new system of capital budgeting and investment prioritisation using net present values and opportunity cost of capital should be put in place, it said.