According to news reports, Suresh Prabhu, the minister of railways, has recently observed that railway finances are in deep trouble which is impacting its services. The dip in oil prices is expected to help the railways finances by savings of nearly R4,000-5,000 crore, according to reports by railway officials. The reduction in subsidy of oil prices, according to the Kirit Parikh Report (2013), was expected to divert freights traffic to railways and benefit its finances, too. It is, therefore, surprising that railway finances are in deep trouble. The quality of service should not be compromised, especially when Railways is considering introduction of high-speed trains and successfully competing with the private sector for freight. Therefore, different methods need to be explored to restore robust financial position of railways. To improve finances, Railways can adopt different techniques.
To reduce expenditure on existing items, Railways needs to undertake zero-based budgeting. Illustratively, in view of higher efficiency levels, better equipment and more sophisticated tools, does it still need more than 13 lakh employees? Specifically, does it still need guards, and special guard coaches, at the end of a mile-long freight train or should these functions be met through technology and cameras? Should cost-effective centralised traffic-control and remote-control technology be extensively deployed, as successfully implemented in many advanced countries, to reduce dependence on man-power on each station? Similarly, with changing times and contractual obligations, should regular maintenance activities of the railway locomotives/coaches be done by the manufacturing company or by the ‘operational’ railways in their workshops which only duplicates staff and equipment costs? The production company can probably do annual maintenance for nominal annual fees.
To enhance revenue from existing sources, Railways can revisit the different segments of its operations, like freight and passenger fares. In the private sector, freight fixation is dynamic with regular inflation adjustment—and despite that, road freight companies make profits. Therefore, Railways should examine its freight fare fixation formula and transparently discuss it in public.
The passenger fares are a more sensitive issue, both suburban and long distance. These fares are neither dynamic nor commensurate with the rising costs. It would be useful if a well-represented committee is asked to devise a new formula, after wide consultations and public debate, so that there is automatic adjustment with increase in the general price level. The air-conditioned classes in the trains could have dynamically adjusted fares, like the airlines in India do as well as trains operating in other countries. The highly-subsidised suburban train fare structure also needs to be revisited and corrected upwards.
Railways has large pockets of land, a significant component of which is unutilised. It could monetise this land either by renting it for a specific lease period of say 99 years, or consider disinvestment wherever the holding is not required. Similarly, it has more than 8,000 platforms, which can be used for a number of commercial purposes with rent collected. Illustratively, platforms can be used for installation of ATM machines. To extend financial inclusion, surveys show that business correspondents (BCs) are not always able to inspire confidence as people in rural areas consider brick and mortar branches to be more reliable than a travelling, salesman-type BC. In this context, railway platforms can be used by bank officials to open temporary bank counters for a few hours, say one day a week. Almost, every railway platform has a warehouse and storage space, which can be shared with the private sector, again at an appropriate rental value. The surface area of the trains, both inside and outside, offer committed readership, and can be used for advertisement purposes. Similarly, the platforms can be used for hoardings and advertisements. In fact, train and platform advertisement space can be auctioned for maximising revenue collection.
Similarly, Railways also has many social assets which can be monetised and used commercially for revenue enhancement. Railway hospitals and schools can be opened to the general public, with a suitable fee structure. Use of railway clubs, waiting rooms, restaurants, cloak rooms, dormitories, retiring rooms, bed-rolls, catering services can be charged at commercially viable rates or auctioned to the private sector to charge rates similar to the local hospitality industry.
To enhance efficiency and cost reduction, Railways could ensure that the track of nearly 1.15 lakh km is optimally utilised. For example, Konkan railway network could be used more efficiently, both for passenger and freight traffic. Similarly, modernising signalling and telecommunication equipment on different segments to increase the frequency of trains could be considered as an alternative to laying new tracks.
Railways, as a last resort, could consider raising resources to develop specific segments of the railway tracks. In the US, bonds serve as a very important source of finance for developing railways in the initial stages. Once the investors know the specific purpose for which financial resources are being sought with monitorable output, raising resources becomes easier.
Finally, to encourage research on Railways and its finances, it would be useful if the latest data is made available to scholars and academicians. Incidentally, up-to-date data on the website of Railways, including those concerning the railway board, are not readily available. It would also be useful to institute chairs in different universities and think-tanks to undertake academic studies on India’s infrastructure, including Railways. A handbook of railway statistics, regularly updated, delineating various performance indicators, would also be helpful for scholarly research. As in the private sector, especially commercial banks, having academicians on the board of railways would also encourage independent research for the benefit of railways.
By Charan Singh
The author is RBI Chair Professor of Economics, IIM Bangalore. Views are personal
