Railways' tough times

Slow progress on reforms in Rail Budget

The Railway Budget for 2016-17 has been presented under difficult conditions. Its revised estimates for 2015-16 naturally reflect a general economic slowdown; and the bill attached to the Seventh Central Pay Commission's recommendations skews the bottomline for 2016-17. The revised estimates for the operating ratio (expressed as per cent of gross traffic earnings consumed by working expenses plus depreciation and pension provisions - the lower the figure, the better) over the current year shows a deterioration by 1.5 percentage points to reach a disturbing 90 per cent. This is in contrast to the previous year, 2014-15, when things turned out better than expected. What is worse is that the estimates for 2016-17 project a further deterioration in the financial health of the national carrier with the operating ratio deteriorating by two full percentage points to 92 per cent. What is most worrying perhaps is that provisions under a key head - depreciation reserve fund - which is used to carry out critical repairs like replacing ageing tracks (a fall in this activity can lead to more accidents) have been lowered to a paltry Rs 3,200 crore for next year from the revised estimate of Rs 5,500 crore for the current year, which itself was substantially lower than the Budget estimate of Rs 7,900 crore. Actual expenditure can be a bit different but the numbers (presumably the best that can be afforded) send out a negative signal.

Poor demand conditions are outside Railway Minister Suresh Prabhu's control. He has at least done something to control costs: Working expenses in the revised estimates have been cut by seven per cent. If they are up about 12 per cent in the estimates for the next year, that is the pay commission's impact. On the whole, Mr Prabhu deserves credit for trying to minimise the financial damage. He has also not strayed from the right path on framing a freight policy, undertaking organisational restructuring and stepping up investments while remaining focused on his customers. But several issues need highlighting. He has not lost sight of reforms but moved slowly on them in the current year. Ideas on restructuring and setting up a tariff authority have been around for a long time but they are not yet in place. Even preparing an alternative accrual-based set of accounts, on which there is no controversy, is yet to be completed. But the crucial question is: what are the economic growth assumptions for next year on the basis of which Mr Prabhu has budgeted for growth in both freight and passenger revenues? These have after all been revised downwards sharply in the current year.

Perhaps most critically, the Railway Budget has not shed any light on how to engage with the railways' huge workforce. There is no progress towards ideas that non-core activities like security (Railway Protection Force) and running hospitals and schools should be hived off. Staff and pension expenses already account for almost half of total expenditure. After the blow delivered by the pay commission, their share of expenditure will go up further. Control on this front is a survival issue for the railways, but Mr Prabhu has not begun to tackle it.