Populism Drags Railways Down

Mr Paswan took credit for the fact that the Indian railways are about the only profit making ones in the world, but it is doubtful that they will remain so if they are kept in his hands for long. The serious decline in the health of the railways can be gauged from the steady deterioration in its operating ratio, which indicates the extent to which railway revenues are used to meet operating expenses. There was a steady improvement in the operating ratio (that is, it declined) from 1991-92 to 1995-96. But there has been a sharp deterioration in the current year and the budget estimates for 1997-98 project it to worsen further. What is particularly intriguing is why margins should have been squeezed so sharply in the current year, when the organisation did not have to bear the burden of the Pay Commissions recommendations as had been originally anticipated.

 

The prospects for the coming year, in which Rs 3,500 crore have to be provided to implement the Pay Commissions report, are bleak in many ways. First, the plan outlay is set to remain static at the same level as this year. The rate of track renewal went down this year, so that arrears in track renewals remains at a high 9,000 km. The railways have been taking pride in generating more and more of their plan resources internally but in this sphere also the ratio of internal funds is set to go down next year. All this happens in the context of sharp fare and freight hikes in two successive years. Freight rates have gone up by 12 per cent this year on top of last years rise of 10 per cent, when the average inflation recorded by the wholesale price index was 7.5 per cent last year and may be a little less this year. Thus the railways are adding to inflation, not absorbing some of its impact, by the way they are running their affairs.

What is most disturbing for the future is the way in which the railways are relying increasingly on the resources generated by the Indian Railway Finance Corporation (mainly through borrowing) and through the own your wagon scheme. These resources are nearly five-sixths of the funds generated internally by the railways to finance their plan expenditure. These funds are extremely costly, about 19 per cent inclusive of discounts, and there is no way in which the assets created with them will be able to generate enough surplus to pay for themselves. Thus, in an attempt to be self-reliant, the railways are getting into a serious debt trap. This is the key issue that needs pondering.