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Insights into Editorial: Railways and a question of transparency

 

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Context:

A surprising feature of the post-Budget discourse in Parliament and in the media these past few weeks has been the total absence of one topic: Railways.

Apparently, the understated objective of doing away with a separate Budget for the Railways, namely, shifting the spotlight away from it, has been handsomely achieved.

However, sweeping under the carpet the serious problems of viability facing the country’s largest and most crucial transport organisation, by taking cover behind the diversions provided by other, more topical issues thrown up by the Union Budget, will not make them disappear.

 

Importance of Indian Railways:

Indian Railways (IR) has the 4th longest rail network in the world. It is a network of 70,000 km and runs about 21,000 trains, carrying 23 million passengers and 3 million tonnes of freight per day.

Government has set a vision of making railways a 100% safe, fast and reliable mode of transport for passengers and freight.

The plan is to modernise the entire network. The recent step of creating an Indian Railway Management Service will help in this objective.

 

However, now in Indian Railways: Finances are out of whack:

  1. Recent public statements about the performance of the Railways on the freight front seem to suggest that all is well with the Railways.
  2. Meanwhile, an important financial performance index has been airbrushed to project a picture totally removed from reality.
  3. The Operating Ratio (OR), which is broadly the ratio of working expenses to revenues, has been artificially kept below 100% by making less-than-required provision for pension payments during 2019-20 and 2020-21.
  4. While the official figures of OR are 98.36% for 2019-20 and 96.96% for 2020-21, the actual OR works out to 114.19% and 131.49%, respectively, if the required provision is made for pension payments.
  5. The purpose of indulging in this self- delusional exercise is not clear. Technically, the Indian Railways are well and truly in the red. Tinkering with statistics cannot alter that reality.
  6. Perhaps for the first time ever, the Indian Railways were unable to adequately provide for the Pension Fund, both for 2019-20 and 2020-21, totalling ₹78,119 crore.
  7. The Railway Ministry has reportedly sought a loan from the Central Exchequer to meet this shortfall.
  8. Railway finances are out of whack. And COVID-19, although it has its effects, but has nothing to do with it since the problems have been existing earlier.

 

Key provision in the Budget for railways:

  1. First, there is a National Rail Plan (NRP) for 2030.
  2. Second, the Western dedicated freight corridor (DFC) and the Eastern DFC will be commissioned by June 2022.
  3. Parts of DFC will be in public-private partnership (PPP) mode.
  4. Third, there will be an East Coast corridor (Kharagpur to Vijaywada), an East-West corridor (Bhusaval to Kharagpur/Dankuni) and a North-South corridor (Itarsi to Vijayawada).
  5. Fourth, all broad-gauge routes will be electrified by December 2023.
  6. Fifth, there will be safety and passenger amenity measures.


Immediate challenges that need to be addressed:

  1. The fact is, over the years, traffic revenues have been unable to keep pace with the increase in staff costs and pension payments.
  2. While the passenger and freight revenues increased by 84.8 % from 2010-11 to 2019-20, the staff and pension costs raced ahead at almost double that rate, by 157%, in the same period.
  3. This, despite the fact that there has been a reduction of about one lakh staff on roll during this period.
  4. The spike in the staff and pension costs is largely attributable to the implementation of the Central Pay Commission recommendations, a 10-yearly feature.
  5. Being a Ministry of the Government of India, the Indian Railway’s finances are bound to be subjected to another fatal body blow by the next (Eighth) Pay Commission around 2025-26.
  6. Therefore, the immediate challenges are achieving a quantum jump in the revenues, particularly on the freight front, and a drastic reduction in the number of employees, there being no way to reduce the number of pensioners in the short run.

 

Way Ahead: Need for public scrutiny in Indian Railways:

A separate Railway Budget has passed irrevocably into history. However,

  1. The need for a detailed public scrutiny of the affairs of one of the largest undertakings in the country, public or private, at least once a year has not gone away.
  2. As suggested earlier by many experts:
    1. an annual report called ‘Indian Railways Report’ on the lines of the annual Economic Survey should be placed in Parliament every year detailing the physical and financial performance of the Railways,
    2. identifying the challenges and
    3. plans for the future to meet the country’s rail transport needs.
  3. The Railways are in the midst of an unprecedented financial distress and are faced with fundamental organisational issues.
  4. This is no time for evasiveness and obfuscation but for clarity and transparency. It is also time to confront reality.
  5. The full commissioning of the two Dedicated Freight Corridors (DFCs), slated to be operational by 2022, assumes great urgency and importance.
  6. A related aspect is the product mix of freight that will be carried in the near future. A disturbing feature of freight traffic is the overwhelming dependence on one commodity: coal.

Global experience in privatising railways services has been mixed. So it is essential to tread with caution.

Bibek Debroy committee has suggested privatisation of some operations in Indian railways.

In order to keep Indian Railways affordable for the lower strata of the society (post privatisation), the government must offer subsidies and tax incentives to companies that would provide low cost services, similar to low cost airlines, to these very pockets of population.

This in the long run would make the railway network more efficient and affordable.

 

Conclusion:

Also, India is a signatory to the 2015 Paris Agreement, committed to achieving targeted reductions in carbon emissions in a time-bound manner. The Railways have to therefore think seriously of a life after coal.

More than a year ago, a grand proposal to merge all cadres and have a single Indian Railways management cadre was announced to eliminate “departmentalism”.

There have been suggestions to corporatise the Railways’s Production Units and outsource the medical services. The government needs to firm up its policies on these crucial issues after discussions with all stakeholders.

An option that merits consideration is the adoption of the roll-on roll-off model of transporting loaded trucks on rail on the DFCs, which apart from boosting revenues has the added advantage of reducing the overall carbon footprint.