Railways without a separate budget

Recent neglect of the Indian Railways' finances is worrying and public policy debate on this must be revived

The Modi government’s decision in 2017 to do away with the presentation of a separate annual budget for the Indian Railways was hailed as a significant reform. What got discarded was a 92-year-old practice, started by the British and continued by the Indian government even after independence. Presenting the Union Budget for 2017-18, the then finance minister, Arun Jaitley, had stated: “I feel privileged to present the first combined Budget of independent India that includes the Railways also.  We are now in a position to synergise the investments in railways, roads, waterways and civil aviation.”

Five years have gone by after the launch of the new system of including the railway budget within the Union budget. A close look at the new system and an assessment of what has been gained and what may have been lost should be a useful exercise.

The disproportionately huge importance that Indian railway ministers used to enjoy till 2017 is now a thing of the past. For well over an hour and a half every year, the railway minister used to hog the limelight in Parliament by reading out all of the new passenger railway services that were launched and all of the new fare concessions or fresh levies that were imposed. Those long railway budget speeches did contain some references to the state of the Indian Railways and its finances. But those speeches were ponderous and boring. With a lot of fanfare and jubilation, the speeches would provide a detailed listing of the tracks that were being renewed or started and the new trains that were being launched, often to satisfy the political constituencies the railway minister belonged to.

It is a big relief that the nation has been spared the pain of the railway minister’s brazen exercise at displaying populism. It was harmful because many a railway minister in the past would fall for the temptation of announcing new projects just to win some applause even though it was purely lip service and, worse, financially unviable. In the last five years, new railway lines have been constructed and new projects have been launched, but there has been no such interminably long list of such announcements in Parliament. That is because the Union finance minister has no time to list out the details of the railway projects being planned for the year, as would be done five years ago. In the Budget for 2022-23, for instance, there were just five paragraphs devoted to the Indian Railways in a speech that had as many as 157 paragraphs.

However, the new system of including the railway budget within the Union budget has brought to light a serious flaw. It has relegated to the background the central issues that affect the country’s largest transporter of goods and passengers. The Indian Railways still carries a third of the country’s total freight. With a manpower strength of 1.2 million, it accounts for about a third of the total employees with the Union government. If the Indian Railways were a company, its annual revenue would have ranked it among the top 10 listed Indian companies.

Illustration: Binay Sinha

It was, therefore, no surprise that the Indian Railways’ finances would be a subject of debate among policymakers and analysts. While the discussion on the day of the presentation of the railway budget would be focussed on the number of new trains and changes in tariffs, the state of its finances, its freight operations and its investment plans would be scrutinised over the following few weeks. Since the impact of the Indian Railways on the economy was large, such discussion would facilitate a better understanding of the railway network and the need for policy correctives.

Unfortunately, that focus and subsequent discussion on the state of the Indian Railways almost disappeared after 2017, when the railway budget got included in the Union budget. The relevant data on the railways’ performance and its finances were available, but the heat and dust over the Union budget was so intense that the railway budget numbers never got the kind of attention they used to get before 2017. In a way, the subsuming of two important events into one meant that the more important event — the Union budget— grabbed all the attention, while the less important event — the railway budget — got ignored by the media and public policy analysts.

For instance, there used to be a big debate over the Indian Railways’ operating ratio — a yardstick that would indicate the amount of money the Indian Railways spends for every one hundred rupees it earns. In 2016-17, the operating ratio of the Indian Railways was 96.5, which meant that for earning Rs 100, it had to spend Rs 96.5.

The operating ratio, a yardstick for judging the Indian Railways’ financial efficiency, declined to 97-98 during the following three years. And in 2019-20, even before Covid had impacted the Indian Railways, its operating ratio crashed to 114 in 2019-20. In 2020-21, the operating ratio further dropped to 131. Last year, it got better, but only to reach a level of 99 and in 2022-23, the operating ratio is expected to be 97. Remember that the operating ratio was 91 in 2014-15, when the Modi government was formed.

This is not to suggest that the deterioration in the Indian Railways’ operating ratio is linked to the scrapping of the system of presenting a separate budget for the railways. There is, however, no denying that the sharp deterioration in the Indian Railways’ finances did not get the kind of attention in public policy debates because these numbers never got the kind of salience that they deserved.

Similarly, there is hardly any discussion on the rising pension liability of the Indian Railways (whose under-provisioning was the key reason for the sharp deterioration in the operating ratio in 2019-20 and 2020-21). The Indian Railways’ pension costs have jumped by a third in the last five years. Its growing pension bill is a big drag on its operating ratio and is also a time bomb that is set to explode soon, unless a strategy is formulated to take care of this burden.

With regard to its traffic operations, the Indian Railways’ freight movement has made a smart recovery. In 2021-22, freight revenue was 14 per cent higher than the level reached in the pre-Covid year of 2018-19. However, its passenger traffic revenue last year was still 13 per cent lower than that in 2018-19. Why has the Indian Railways’ passenger traffic revenue fared worse than the smart recovery seen in its freight income?

There are many more such questions on the performance of the Indian Railways, which need to be raised and debated. The solution is not to revive the old practice of having a separate annual railway budget. A better option for the Indian Railways would be to present to Parliament an annual evaluation of its financial performance along with its medium-term outlook. This could be presented just at the start of the financial year and could be an occasion for discussion by law makers inside Parliament and by public policy analysts outside.