Wednesday, February 27, 2013

A budget freighted with the past

It was perhaps unrealistic to expect the last rail budget to be presented by the incumbent government before facing a general election to tread any unbeaten path or introduce revolutionary concepts. To that extent, the maiden budget proposals of Railway Minister Pawan Kumar Bansal are on expected lines. There are no major surprises. However, there are a few issues concerning the future course that this crucial infrastructure behemoth will take that should be of concern to not only the UPA government but any dispensation that may be in power thereafter.
Modest growth rate
Less than a year ago, Mr. Bansal’s predecessor, who presented the previous budget, envisioned an investment of Rs.7.15 lakh crore during the 12th Five Year Plan. The Gross Budgetary Support component out of this was projected as Rs. 2.5 lakh crore. It is rather distressing to note that the 12th Plan approved by the Planning Commission has scaled down the Railway plan to Rs. 5.19 lakh crore with a GBS component of Rs. 1.94 lakh crore. In other words, the government is not in a position to provide for a much higher rate of growth of the railway sector than it has historically done. The long-term implication of this modest growth rate on the economy as a whole needs to be looked into. Such scaling down of growth plans also calls into question the need for formulating grandiose vision plans that have no chance of materialising.
The bettering of the safety target in terms of accidents per million tonne km of traffic (0.13 achieved against a target of 0.17 set for 2013) is creditworthy. There is need for the Railways to analyse how this reduction was achieved so that the feedback can inform safety investment decisions in future.
The announcement of the formulation of a Corporate Safety Plan 2013-14 is a welcome step. It is to be hoped that the plan will be formulated and implemented with the same diligence and consistency as was done in the case of the first CSP.
Heavy haul club
It is a matter of pride that the Indian Railways has joined the select club of world railways moving more than a billion tonnes of freight annually, and is entering into yet another exclusive group of railways moving more than 10,000 tonnes per train. Some concomitant steps that should improve maintainability, reduce maintenance costs and improve staff productivity such as widespread introduction of track friendly/self-steering bogies and doing away with the anachronistic institution of goods guards, have not been explicitly mentioned in the budget. Hopefully, these and other steps will be implemented.
The targets of Rs.1000 crore each for the Rail Land Development authority and the IR Station Development Corporation to be raised through the PPP route and Rs. 4500 crore through scrap disposal during the year are quite ambitious. It needs to be seen how far these are achieved considering the limited success so far, particularly in the area of PPP.
The Minister’s announcement of a revamp of the E-ticketing system to handle 7,200 tickets per minute from the existing 2000 tickets per minute and to handle 120,000 users at a time instead of the present 40,000 should come as a welcome relief to prospective passengers. This also means that passengers should be prepared for the scenario that seats/berths in popular trains will get filled up that much faster!
As in previous budgets, a resolve to fill 1.52 lakh “vacancies’ has been proclaimed. It needs repeating that if all the vacancies were to be filled immediately, whatever ‘excess’ has been projected in the budget would get wiped out. The average annual cost of one lakh employees is in excess of Rs. 4000 crore. This hard fact is being repeatedly smoothed over. Staff productivity has to improve if the present levels of compensation are to be sustained. There is no mention of this aspect in the budget.
The proposal to impart skills to youth in railway related trades in 25 locations is a welcome initiative.
As in every rail budget in the recent past, this budget also lists a number of manufacturing facilities to be set up either in collaboration with the State governments or through the PPP route, apart from upgrading the existing Railway workshops. It is not clear whether a comprehensive study has been done to see if the expansion of the existing/already planned units will serve the purpose instead of proliferating such units all over the system.
Sixty-seven new express trains and 27 new passenger trains have been proposed to be introduced apart from extending the services of 57 trains and increasing the frequency of 24 trains. No doubt, these are being proposed as a consequence of tremendous public pressure. But the fact that not more than 60 per cent of trains at any moment are on time is a sobering reminder of the extreme pressure to which the system is being subjected. The attitude seems to be: who cares?
Financial performance
It is creditable that an operating ratio of 88.8 per cent is being achieved during the current year 2012-13, even after fully repaying the loan of Rs 3,000 crore along with interest that was taken from the Ministry of Finance, and after setting aside Rs. 9500 crore for Depreciation Reserve Fund (DRF). Against this, the budget estimate for 2013-14 projects an Operating Ratio (OR) of 87.8 per cent with a DRF appropriation of only Rs.7500 crore. This once again highlights the need for a more reliable index of financial performance rather than the present OR, which can be tweaked to suit by appropriately adjusting the DRF allocation. It is hoped that the proposed revamping of the accounting system will look into this aspect.
Additional capacity
The incremental loading of 40 million tonnes projected for 2013-14 vis-à-vis the BE of 2012-13 is far below the projections arising out of the Vision 2020 document of nearly 100 million tonnes. This is an indication of how far the Railways have fallen behind their growth plans projected hardly three years ago. Food for thought at the highest level whether the Railways should lead or lag behind the overall economy’s growth rate.
In this context, the Minster’s announcement that contracts covering 1500 km of the Dedicated Freight Corridors on the Eastern and Western sector will be awarded during 2013-14 is welcome news as the completion and commissioning of these two corridors is essential before the effects of the next Pay Commission deal a fatal blow to Railway finances around 2017-18.
Tariff proposals
The Minister’s announcement for Fuel Adjustment Component (FAC) linked revision of freight tariff, a proposal mooted by his predecessor, with effect from April 1, 2013 is welcome. His reluctance to bite the FAC bullet in the case of passenger fares is understandable, considering that a revision has been done recently. But hopefully this will not once again lead to a long hiatus of passenger fare revision citing various reasons.
It is necessary to institutionalise the revision of freight tariff and fares through the proposed Rail Tariff Regulatory Authority. However, it is doubtful whether a final decision in this regard will be taken during the balance tenure of this government.
Structural reforms
Typically, the budget has skirted the prickly issue of structural reforms. There is no mention in the budget of even the proposal in the last budget to expand the Board to include two members to look after PPP /Marketing and safety/research. The proposal has perhaps been shelved.
Overall, the budget conveys an impression of an exercise to keep the system going very much as it has done in the past, at a modest growth rate. Whether such a rate of growth of this key infrastructure sector will be sufficient to sustain the projected growth rates of the economy as a whole remains to be seen.
A final thought
Does the Railway Minster have to read out the complete list of projects, new lines, etc., in his budget speech, many names of locations or stations unpronounceable depending on which part of the country the Minster hails from? The previous Minister had included all such details in Annexures to the budget speech. It will be a good practice to adopt that convention to save time and embarrassment.
(K. Balakesari is former Member Staff, Railway Board)
Bansal’s plan for the Railways has no surprises and seems to be an exercise
in keeping the system going


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