Sunday, January 13, 2013

De-politicize railways, create independent corporation

Railway fares have finally been raised for the first time in 10 years. Even so, the change may reduce just Rs 6,600 crore of the loss of Rs 25,000 crore on passenger traffic.

Railway fares have finally been raised for the first time in 10 years. Even so, the change may reduce just Rs 6,600 crore of the loss of Rs 25,000 crore on passenger traffic. 

Why do governments subsidise rail fares so much and for so long? Of all subsidies, rail subsidies look the least justified. They are not used mainly by the poor, and are in no sense essential. They run mostly in developed areas, and so do not serve truly backward regions. The railways represent 19th century technology that was overtaken by buses in the 20th century, and buses everywhere are far cheaper than trains. So, why subsidise a costly, obsolete mode of travel that has no bearing on poverty or backwardness?

For long-distance journeys like Delhi-Chennai, bus travel may be too inconvenient. But such long-distance journeys are for purposes like business, employment, meeting relatives, pilgrimages and tourism. These do not merit subsidies in a poor country. 

Suburban commuting fares are the most subsidized of all. Some analysts argue that this helps poor people come into cities. In fact the overwhelming majority of commuting passengers are travelling for commercial reasons. Casual workers rarely commute by rail. 

Commercial commuters adjust the cost of commuting into their sale prices. 

Experience shows that if you raise suburban fares, employers will typically raise the conveyance allowance of employees. Corollary: the suburban rail subsidy benefits the employer, not the employee. 

The truly poor do not typically commute to work. They set up shanties, illegally, not far from their places of work (an excellent account of this in Kolkata was given in an EPW article by Vijay Jagannathan). In Delhi, 80 per cent of colonies came up this way and were later regularized. Anyway, poverty is extremely low in big cities with suburban trains, so this is hardly a focus area for subsidies. 

Besides, cities are getting more and more congested and polluted. A suburban rail subsidy is a subsidy for congestion and pollution. Air pollution is a major cause of disease and death. In Mumbai, 4,000 people are killed annually by falling off overcrowded trains or being run over. Sad to say, the suburban subsidy encourages even more over-crowding and deaths. 

For a decade, the Railways have increased freight rates but not passenger fares. The ratio of fares to freight rates is the highest in the world. So, an implicit tax is being imposed on all goods including exports, just to subsidise passenger fares. This implicit tax on freight raises prices for everybody, and makes exports uncompetitive. 

The British Raj instituted a separate railway budget because the railways at the time accounted for a huge chunk of government revenue. But today rail revenue is modest, less than that of an oil company like Indian Oil Corporation. 

In our coalition era, the Railway Ministry has become an important patronage post awarded to influential coalition partners. The Railway Minister presents an annual Railway budget to Parliament with almost as much fanfare as the Finance Minister presents the overall budget, a privilege not extended to the railways anywhere else in the world. 

The Railways are cynically seen as an avenue for giving jobs and contracts, a huge patronage machine. Railway Ministers constantly sanction new, low-priority railway trains for their favoured constituencies, or create new regional headquarters to justify additional jobs in a grossly overstaffed organization. 

How do we end this waste of public money on patronage and unwarranted subsidies? Total escape is politically impossible, but converting the Railways from a government department into a corporation can curb the damage. This has already been done in telecom. 


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