Making business-sense of Railways  

Should we really raise railway fares on any pretext? Of course, on certain occasions, it might be necessary. But raising fare and freight constantly, termed as “dynamic fare or freight” should normally be an anathema.

Other questions which come to mind are: Are the railways really in losses? Are they really giving subsidies? Or is it bad mathematics emanating from improper budgeting system? The latter seems to be closer to reality.

Some years ago the railways came out with a heavily “surplus” budget, had paid a huge sum in forex to a US university to project the then Railways Minister Lalu Prasad Yadav as a wizard. It turned out that the Railways had fudged the accounts to create an “unusual surplus”.

Then are the railways in losses? Possibly not! The answer to this is given by the Railways themselves in different ways. Through different budgets, it creates a syndrome of having poor operating ratio. But that also is questionable.

One fact emerges. The railways are not aware what their accounts are. Except possibly accrual of fares and freight, they are not accounting the expenses properly. The estimates of fare per km and operating expenses are more in the realm of imagination.

Obviously, it’s a bureaucratic decision. But it has a heavy political cost that the ruling combine may have to bear. It leads to make the Government unpopular particularly at a time when elections are due in some of the poorest States, including Uttar Pradesh.

For the past ten years, the Railways have come to support their inefficiency stating that they are not running a service. “It is a business”. If it is a business, the Railways do not know how to manage it. They come out with euphoric statements to justify inefficient functioning.

Nowhere in the world is railway a business. Railway needs to be viewed as a catalyst. Road or river itself cannot be by itself a business. These are catalyst to move forward the economy. They have the responsibility, particularly the Railways, to make Indian economy move at a higher growth rate – even more than the official target. It can peg it for 10 per cent for the next decade.

The Railways should be seen like a social service. All the same, it has to run efficiently and create a competitive atmosphere. It cannot allow people to move to other modes. But if one has a choice between AC travel in Kolkata express-type train and air, people would prefer the air and for obvious reasons. In many cases, air travel is cheaper and faster.

The railways, unfortunately, run on a bogey of social service, which, in most cases, it is not doing. NITI Ayog‘s member Economist Bibek Debroy has come out with a unique report. He says Indian Railways overstates its losses from “social obligations” by an exorbitant Rs 6,000 crore every year. It means over the past decade alone it has overestimated its “losses” to Rs 60,000 crore an amount equal to various projects that were announced in budgets. Of these, reportedly only could some come up.

This is a testimony of how the railways are befooling the people and misguiding the political leadership. Inefficiency, the report states, in cost structure also significantly contributes to the “losses” in passenger services and hence tariff hike cannot be the only mechanism to address such social costs. Railways, the report observes, stretches input costs to a point that it makes the “under-recovery” due to “low” tariffs look larger that they may actually be.

Debroy report states that its pricing of AC services is higher than equivalent AC bus service and tariff hike cannot be the principle to address such “losses”. It also needs to be understood that the so-called “subsidies” are not paid by the exchequer or budgetary support. It is stated to be done through a cross-subsidy of freight to passenger. Indian railway freight is one of the highest only because of this cross subsidisation. As a result, the poor people have to bear the brunt.

In the early 1950s, Railways were a bigger organisation compared to the Chinese railway. Now Chinese have surpassed. Indian railway used to carry 80 percent of freight and only 20 percent used to go by road, now it is just the opposite. It has happened because both Central and State governments have literally invested trillions of rupees for development of roads. However, they have not spent a penny on railways.

So the concept has to change. Railways have to run on lower fare and freight so that the economy can boom. There has to be a government strategy for investing in railways and in turn the accounting system has to be realistic, transparent and not opaque as Debroy report suggests. All other ministries get outright grants and the Railway earns every penny it spends. This has to change. The last 25 years approach of treating it as a commercial entity has to be replaced. It has to be made competitive and viable to give the nation’s economy the real surge.

By Shivaji Sarkar