The Railway Budget for 2016-17 has just been presented. The headline-grabbing point about no new trains and no fare increases is a myopic way of looking at the Budget. There are two ways to look at the Budget. The first is to look at the numbers in 2015-16 and how the projections went wrong, thereby adding credibility to the projections for 2016-17. Of course, the numbers are bad. Paragraph 3 of the budget speech sets out three reasons for this – growth slowdown, Pay Commission impact and declining modal share of Railways. One can’t disagree with this diagnosis. The question is, what does one do about it? There is not much one can do in the short-run. A lot of attention centres on the operating ratio (OR), ostensibly a surrogate measure of what the Railways can spend on capital expenditure, other than what is available from Union government through gross budgetary support (GBS). In 2015-16, the OR is expected to be 90% and in 2016-17, it is expected to be 92%. Both numbers are better than what was feared. However, in the absence of proper commercial accounting principles, the OR is really derived as a residual, since one can inadequately provide for depreciation and safety.
Consider those three points mentioned above. Even if economic growth in 2016-17 is better than in 2015-16, that doesn’t necessarily translate into more revenue for the Railways. Passenger transport is a losing proposition. Railways make money through freight and this brings one to the third point, of a gradual erosion in the Railway share of freight transport. That’s because of the cross-subsidization done of passenger losses through freight revenue. As a rough indicator, for every passenger train the Railways run, half a goods train needs to be run to compensate for the losses. Ideally, given the loss in share to road transport, compounded by an improvement in the road sector, freight rates should have been adjusted downwards. There are two possible reasons why this has not been done. The Budget Speech mentions the Rail Development Authority as a regulator. This can be set up either statutorily or administratively. Ideally, to ensure independence, it should be set up statutorily. However, because a statute has to be passed by Parliament, a statute takes time. The concept note on the Rail Development Authority, put up in the public domain, suggests an interim Authority, set up administratively, to be eventually subsumed in the eventual Authority, set up statutorily. Therefore, it is perfectly possible for tariffs to be changed once the Authority is set up. Indeed, changes in tariffs do not require the Railway Minister to go to Parliament. Therefore, if the projections do not materialize, as is quite likely, it is entirely possible for tariffs to be changed in the course of the year. (Read paragraph 99.)
Paragraph 20 of the speech mentions goals for 2020. These are reserved accommodation on demand, time-tabled freight trains, improved safety, elimination of unmanned level crossings, punctuality record of 95%, increased speed of freight trains to 50 km/hour and passenger trains to 80 km/hour, semi-high speed trains along the golden quadrilateral and zero discharge of human waste. These are desirable goals, but cannot be achieved in the absence of structural reforms. That’s the reason several paragraphs of the Budget Speech are devoted to incremental improvements in passenger services. They are important, but they don’t address structural issues. Once structural problems are solved, numbers will take care of themselves. Among the structural reforms mentioned are transparency in procurement, decentralization of decision-making, JVs with State governments, PPP redevelopment of 400 stations, the Rail Development Authority, reorganization of the Railway Board and commercial accounting. The silo that lacks a mention is about HR. But then, mentioning everything in a Budget Speech may also be tactically counter-productive.
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