Despite fund crunch, fare rises unlikely in Railway Budget

Despite a severe funding problem due to slowing of freight traffic revenue and heavy outgo on account of sixth pay commission recommendations, Mamata Banerjee is not likely to announce any across the board increase in freight and fare rates on February 25, when she presents the railway budget as minister in the UPA government.

Political repercussions are not the only reason why the Trinamool Congress chief would leave the sensitive issue of fares untouched before the West Bengal assembly elections in April. The move, which would help the rail minister give the budget a populist flare, would be dictated equally by economic considerations. “Even if we increase the fares across the board by 10 per cent, we will get only around Rs 2,300 crore. This is not sufficient to build a single line,” said a senior official from the rail ministry.

He, however, emphasized the serious necessity for more money. “We have told the Planning Commission and the ministry of finance that we can take care of our working expenses but the government will have to help us in a big way for expanding infrastructure. We cannot generate the kind of money it requires.”

The Planning Commission has already said passenger fares, unchanged for a decade, need review to improve the railways’ financial health. In a recent letter to the finance ministry, it had said the railways must do more to restore financial viability by “reforming the passenger tariff structure”.

The railways currently subsidise passenger operations through freight earnings. “Though we are cheaper than road in many sectors, our freight rates are too high. This year, we are falling short of our internal generation target,” the rail ministry official said. With freight rises already being done outside the budget and inflationary pressure building in the economy, the minister might not announce any increase in freight rates.

The ministry’s attempt to bring in private sector investment, such as the wagon investment scheme, have also not done well. The ministry’s overall budget for the current Plan period ending March 2012 is around Rs 233,000 crore, of which over Rs 90,000 crore was to be internally generated. This, however, is likely to be missed by at least a third – around Rs 30,000 crore – according to sources.

Indian Railways currently suffers an annual loss of Rs 14,000 crore on account of passenger operations. Its cash reserves in the Capital Fund and the Development Fund, which were Rs 18,000 crore in the financial year 2007-08, have fallen to Rs 5,000 crore.

The poor financial health is reflected iny a worsening Operating Ratio — the amount of money spent to earn a sum of Rs 100. The ratio has increased from 75.9 in 2007-08 to over 95 per cent, owing primarily to the pay commission impact, according to the ministry.