Budget overhaul: Modi govt just took the first step to privatise Indian Railways

S Mohammed Irshad Sep 26, 2016 

Theere are reasons to believe that the Narendra Modi government's decision to merge the railway budget with the general budget is part of the government's larger strategy to privatise Railways, India's largest public carrier.

But, it is important to understand that unlike other public sector units, privatisation of the railway is not going to be an easy task for the government. To under stand this, let's look at the larger context. The proposed scrapping of the railway budget is part of the reforms for which the NITI Ayog stands for. Budget is part of 'Planned Development'. The government has to put money to run its various schemes. This rationale will apply to the railway's as well. The railways operates independently and it has multiple linkages with rural and urban economy of India. Its earning is higher than any other ministry in the government, with the figure standing at Rs 1.68 lakh crore in 2015-16.

The department also provides employment to 13.2 lakh and being an employer in itself, needs its own financial management. Scrapping the railway budget makes railway dependent on the general capital support system of the government, which will also result in the department losing financial autonomy. The fiscal responsibility and budget management act and other regulatory mechanisms will then apply to the railways as well.

Representational image. Reuters

But, the problem is that the railways cannot be treated as any other public sector companies in India. It is not only one of the largest employers; the railway owns the huge infrastructure and land. For this reasons, the NITI Aayog proposal is not considered as a well thought out plan to improve the efficiency of the railway.

If one looks closely, it is apparent that NITI Ayog has been after the Indian Railways since it is formed. The NITI Ayog's report titled, Reviewing the Impact of “Social Service Obligations” by the Indian Railways offers a clear indication of the direction in which NITI Ayog wants to look at the future course of the railways. The report has noted that the Railways has consistently incurred losses in its passenger transport business.

Why the Railways matters to economy?

The railways is critical since its services complement many other sectors and the broader economy. It commutes workers with less charge, transport of goods and food materials. Hence, lack of functional or capital autonomy would affect other sectors too which are dependent on the railways. Scrapping rail budget restricts the organisation's capacity and finally leads to the privatisation of services. The impact will not just be on the cost of travel, it will also affect the price of raw materials and food security of millions. NITI Ayog is not keen on the larger support system which the railways offers to the economy and it sees only the government spending on the railways and not even the warnings.

In the past too, there have been opinions that the “social service” orientation of the passenger transport business has impacted the railways' flexibility to operate on commercial principles. This NITI Aayog report notes that guiding the railways with the social service obligations has, in some manner, resulted in pushing the railways into losses. The question is how to assess the railways contribution to the economy and society? Beyond numbers what one should look at is how crucial is the department for the Indian economy, primarily due to its connectivity and affordability. It is the cheapest travel and freight option for the millions of Indians and contributes about one percent to the GDP.

According to press note by the Railway Board chairman the railways accounts for 6 percent of the total employment in the organised sector directly and an additional 2.5 percent indirectly through its dependent organisations. It has invested significantly in health, education, housing and sanitation. With its vast network of schools and investment in training, the railways plays an important role in human resource development. Its nearly 63,000 route kilometres fulfills the country's transport needs, particularly, in respect of long distance transport of goods.

Freight trains carry nearly 1.2 million tonnes of originating goods and 7,500 passenger trains carry nearly 12 million passengers every day. Besides, it plays a major role in controlling the price of essential commodities country. The railways, coupled with Food Corporation of India (FCI), is the best supply chain management in India. FCI operates only because of railways ensure low cost transport.

The Indian Railways has a history of its own. Bogart and Chaudhary (2013) explains in their paper titled 'Engines of Growth: The Productivity Advance of Indian Railways, 1874-1912,' that its growth rate during 1913 was larger than both developed and developing economies put together. One can attribute this to the colonial government's interest but it indicates its importance even during the colonial period.

The proposed idea of scrapping the railway budget has to be analysed in this context.

The author works with the Tata Institute of Social Sciences.