Beyond a freight hike

To prosper, railways must invest in improving efficiency

The railways have "rationalised" the various freight rates for carrying coal and although it claims the move is revenue neutral, others project it will mop up an additional Rs 1,000 crore in the current financial year. This comes close on the heels of reports that the government has accepted Railway Minister Suresh Prabhu's proposal to do away with the rail Budget and appointed a committee to work out the modalities. Thus, it seems that the national carrier has lost no time in exercising the new pricing freedom that it has acquired de facto - the death of the rail Budget is yet to be officially announced. But there should be no doubt that only a first baby step has been taken on a long journey.

The railways always had the power to change freight rates and fares without seeking Parliament's approval and has, in fact, done so on many occasions. It is the increasing of passenger fares that has been seen as a political hot potato. Hopefully, this, too, will lose its sanctity soon. Fares need to be made dynamic - adjusted according to geographical and seasonal demand - and raised wherever possible. But the overriding reality is that there is very little space for raising either. On both fronts - passenger and freight - volumes are marginally declining (as measured by passengers kilometres and net tonne kilometres, respectively) and the railways is losing market share. Any sharp rise in prices can well lead to a revenue decline. Hence, the scope for exercising pricing freedom is severely limited.

The only way in which the railways can survive and prosper is by improving efficiencies and investing judiciously. Some investment, related to safety, is non-negotiable. Ageing tracks and rolling stock have to be replaced. There is a serious deficit in the former. Moreover, investment in new technology that enhances safety cannot be held back. Beyond this, investment must go to projects with credible prospects of quick revenue payback. The most obvious priorities are last mile connections to ports, mines and plants that enhance capacity for carrying revenue earning bulk freight. What certainly do not qualify are the fancy high-speed passenger trains. As for the rest, the government must pay for linking remote corners of the country (good for national integration and security) and additional suburban traffic capacity which is socially necessary but does not pay for its keep.

The big challenge for the railway minister is to carry out administrative reforms, which alone can enhance efficiencies, and are opposed by deep-rooted vested interests. Perhaps the easiest thing is recasting the carrier's accounts along commercial lines as a lot of work on this has already been done. Without this, it won't be possible to develop profit centres and know which operation, service, train or station is profitable. Corporate annual accounts, which will be more transparent, will facilitate private investment. The next priority should be to set up an independent regulator, which will determine price changes and arbitrate in disputes arising from public-private partnerships (PPP). If the regulator's rulings are mandatory, then it will facilitate PPP projects. A key hurdle will be reorganising the railway board to reflect different service and customer segments. But the most challenging part will be to merge the various officers' services, which have created a damaging culture of departmentalism and irresoluble turf wars.