Monday, September 30, 2013

How Railways’ finances got derailed

Mamuni Das

  • Train on road: The shell of a train coach on GT Karnal Road (NH 1) being moved from Kapurthala to Rail Coach Factory, Rae Bareli. - Kamal Narang
    Train on road: The shell of a train coach on GT Karnal Road (NH 1) being moved from
     Kapurthala to Rail Coach Factory, Rae Bareli. - Kamal Narang
Railways has consistently lost market share in freight traffic to competing modes such as roads and pipelines
Politicians have always coveted the Railway Ministry portfolio as trains help net an increasing number of voters. Nearly 860 crore passengers travelled by train in 2012.
For the Indian Railways, the last 20 years present a picture of how populist politicians have milked the system for parochial and short-term gains. In the process, they have forced the Railways to lean on freight traffic to make money, while not allowing passenger fares to go up for years. Such steps may have appeased voters in the short run, but harmed the Railways eventually.
Constant increases in freight charges have pushed many freight customers, such as oil companies, away from trains to looking at moving the commodity via pipelines. The result: Railways has consistently lost market share in freight traffic to competing modes such as roads and pipelines.

COALITION IMPACT

Critical of such cross-subsidisation, K.K. Srivastava, former Member Traffic, Railway Board, explained, “Bulk cargo moving by trains is usually sticky and the shift away from trains does not happen over one day. It happens over many years. But, once the commodity has shifted to some other mode, it is impossible to get it back. Petroleum products shifted to pipelines. What if coal moves to slurry pipelines?”
Coalition politics at the Centre, which became the norm in the last decade-and-a-half, saw the Railways portfolio being used as a trading tool, with leading political parties such as the Congress and the BJP bartering it with allies in exchange for support. For 15 years over last two decades, the Ministry was headed by a coalition partner (see table) .
This was also when the gap between average passenger rates and freight rates — an indicator of cross-subsidisation — widened. The contribution of passenger revenues to the Railways’ total revenue kitty has gone down. During the period, losses from passenger operations have ballooned and are expected to touch Rs 25,000 crore this year. This is equal to the total earnings from the passenger segment two years ago (2011).
“Most Railway Ministers contributed to a decline in Railways’ financial health…The internal generation of funds has touched a low due to lack of courage to fix service charges in line with input costs and continued cross-subsidisation from freight to passenger business. Such cross-subsidisation hits the poorest of poor by fuelling inflation. The subsidised lot are passengers, who include only a few from the poorest of poor category,” said Niraj Kumar, former Director General, Railways.
Not only did politicians ignore reformist and difficult decisions, but those who attempted to do so were unceremoniously punished. Dinesh Trivedi, who presented the most reform-oriented Railway Budget, was thrown out by his own party chief Mamata Banerjee within a day. He was replaced by his party colleague who rolled back the proposals and then got the budget passed.
“All Railway Ministers behaved as if they were, not the Railway Minister of India, but of their home States. There was always a race in the Railway Board to find ways of sanctioning more and more projects for the Minister’s home State,” said Kumar.
The Railway Budget became a platform for politicians to mindlessly announce factories and trains for their constituency, without much thought on where the funds will come from.

PRODUCTIVITY IMPROVEMENTS

This explains Railways’ pending projects which run into lakhs of crores, as they were announced by politicians with an eye on their respective constituencies. In spite of this, Railways did strengthen its tracks, introduced wagons to carry more load and brought in better passenger coaches . Number of passengers booked on trains increased 2.3 times, while cargo loaded went up 2.6 times. Sumant Chak, Director, Asian Institute of Transport Development, a transport consultancy known for its expertise in Railways, pointed out that these increases have been achieved despite a reduction in employee base from 16.5 lakh in 1991 to about 14 lakh now.
“The growth in output of both freight and passenger transport has been achieved with far less than proportionate increase in inputs. This has been enabled by inducting locomotives, wagons, track and signalling with better technology that are now more productive with lesser failures and lower maintenance requirements. This has helped Railways carry more cargo and more people per train, besides moving more trains,” said Kumar. But Railway tracks have become congested. During the period, the railway network in India has grown by about 3 per cent, while China increased its network by 24 per cent. Hopefully, the dedicated rail freight corridor — being built along Delhi-Mumbai and Delhi-Kolkata — will bring about the much-needed track capacity.

ORGANISATION STRUCTURE

Given this backdrop , experts vote for fundamental reforms for Indian Railways. Pointing out that the current organisational structure of the Railways is over 100 years old, Chak calls for re-orienting the Railways on various business-lines and making top Railway officials accountable for such businesses.
This would require bringing in much-delayed accounting reforms in Railways. These steps have been recommended by many committees such as those headed by Prakash Tandon and Rakesh Mohan.
The moves in this direction have seen multiple public sector units that came up, such as the Container Corporation of India, Indian Railway Finance Corporation, Ircon and RITES, pointed out Chak.
Though they are still significantly embedded in the Railway system, these firms functioned as corporates with clearer accounting standards and business objectives. Additionally, they also helped trim Indian Railways’ large employee base as some railway staff migrated to these companies. For instance, the e-ticket concept was introduced by one of Railways' public enterprises, IRCTC.
An effective rail tariff regulator — to de-politicise the fare setting mechanism to better reflect the inherent costs for different services – is necessary at the earliest for the next round of reforms, added Srivastava.
In last two decades, Railways haslost passengers to airlines (over long distances) and roads for short hauls. Passenger amenities have not improved enough to catch the fancy of upwardly mobile Indians who prefer private vehicles, airlines or luxury buses. On the contrary, ever-increasing complaints about dirty train toilets and shoddy food indicate deterioration in services.
(This article was published on September 27, 2013)

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