Changing tracks

Proposals for Indian Railways are welcome

Finance Minister Arun Jaitley deserves credit for charting out a distinct new path for the beleaguered Indian Railways. Presenting the proposals for the railways within the ambit of the general Budget, Mr Jaitley refrained from announcing any populist measures or new trains. In fact, in stark contrast to how Railway Budgets were presented in the past, the FM accepted that the railways were facing stiff competition from other modes of transportation and required transformative measures. The truth is that Indian Railways has been stuck in a vicious cycle wherein it has routinely failed to provide quality and timely service to passengers, has a humbling record on safety and faces increasingly worsening finances. It can’t perform better because it doesn’t invest and it can’t invest because it doesn’t raise tariffs, especially for passengers, as often as it should. It was imperative to change the situation because the top 1 per cent of the highest paying customers account for 30 per cent of all railway revenues. The railways cannot afford to lose these clients to airlines. 

In his Budget, the FM has tried to target each of these weaknesses, starting with finances and tariffs. Tariffs, he said, would be fixed after taking into consideration costs, quality of service, social obligations and competition from other forms of transport. India has one of the lowest passenger fares in the world — the ratio of average passenger fare to the freight rate for India is 0.3 as compared to 1.2 in China and 1.3 in France. Moreover, deceleration in earnings growth in both passenger and freight fares has meant that the operating ratio – the extent to which total working expenses are covered by the gross traffic revenue – deteriorated from 90.5 per cent in 2015-16 to 94.9 per cent in 2016-17. However, an independent Rail Tariff Authority is expected to be in place in a few months. Another significant change is the announcement of a Rashtriya Rail Sanraksha Kosh with a corpus of Rs 1 lakh crore. This was one of the crucial and long-pending recommendations of the Anil Kakodkar-led high-level safety review committee in 2012. The fund will be used to improve safety preparedness and maintenance practices. 

The other key directional shift brought about by this Budget is to nudge the railways to engage with the private sector, especially for finances. To begin with, the FM announced that three profit-making public sector undertakings under the railways — IRCTC, IRFC and Ircon — would be listed on the stock exchange during the coming financial year. This will not only unlock value in these firms but also bring the railways out of their insular mould. Another indication of a change in stance towards market players was the FM’s announcement that a new Metro Rail Act would be brought in to facilitate greater private participation and investment in construction and operation. While these indications are promising, it should be clear to the government as well as the decision makers within the railways that the private sector will not commit unless the railways demonstrate their ability to improve functioning. This, in turn, will test not only the government’s promise to allow fare increases but also the railways’ capability to become more efficient.