And once again, all the advice is thrown out of the window
If we had to design a financially viable rail-based transportation network for India in the year 2010, what would it look like?
The answer to this question is unlikely to include businesses such as schools, hospitals, manufacturing and construction. The answer is unlikely to require an organisational structure based on an inwardly focussed cadre system that largely ignores lines of business and customers. The answer is unlikely to require a separate budget to be presented to Parliament.’’
(The Indian Railways Report - 2001)
Instead, in the tradition of Railway Budgets, Laloo Prasad Yadav’s proposes no institutional reform. And while the Railways desperately needs a forward-looking vision to meet the needs of a growing economy, the current budget clearly fails on this count.
Three years ago, The Indian Railways Report, 2001, laid out a path for the restructuring of the Railways. The expert group, headed by Rakesh Mohan, felt that the Railways’ ills arose from its split personality: On the one hand—since the separation of accounts in 1924—the Railways is seen by the government and by itself as a commercial organisation that needs to be financially self-sufficient.
On the other, as a department of the government, it must fulfil ‘‘social objectives.’’ It has been difficult to reconcile these roles and until today, there is no clear separation. It was recommended that the two objective functions be separated. The Railways should perform “public services” and should be granted an explicit subsidy from the Central government budget to do so.
On the other, as a department of the government, it must fulfil ‘‘social objectives.’’ It has been difficult to reconcile these roles and until today, there is no clear separation. It was recommended that the two objective functions be separated. The Railways should perform “public services” and should be granted an explicit subsidy from the Central government budget to do so.
For the rest, it should function as a commercial organisation.
The Rakesh Mohan group recommended:
• The corporatisation of the Railways, the separation of core and non-core functions.
• Redesigning the accounting system to follow corporate accounting practices.
• Developing a legislative framework to permit private participation.
• Setting up a regulator, the Indian Railway Regulatory Authority.
In the first budget of the UPA, the first phase of this restructuring plan should have been embarked upon. A beginning needs to be made by recasting the accounts of Indian Railways into a corporate accounting format. Financial statements like the profit-and-loss statement and balance-sheet need to be prepared.
Technologically, Railways constitutes the most efficient means of surface transport. Its energy requirement compares to that of container traffic. It’s much lower than that of road transport. For example, the energy consumption for freight movement on railroads is 440 Joules/KgKm, while that required for trucks is 1836 Joules/KgKm: a difference of four times.
In addition, the Railways generates less pollution and involves fewer accidents. However, the Railways has witnessed a steady loss of market share of freight to road transport—down from 82 per cent in 1970 to less than 40 per cent now.
This happened because of the wrong policy of cross-subsidising passenger services which led to a hike in freight rates almost every year for the last 30 years. In contrast, the average rate per passenger kilometer is not even two-thirds of the average cost per passenger kilometer.
The burden of the increases in costs of passenger services have been passed on to freight operations or left uncovered.
Then there is competition from private transporters in roads. Slow speeds, corruption, and the absence of managerial flexibility at the operating level add to the problems. In addition, the priority to passenger traffic has had an adverse effect on the speed of goods trains because right of way is given to passenger traffic.
So, while the speed of goods train could average to 75 km/hr in theory, in practice the average speed is only 22km/hr, because of stoppages for passenger trains. Overall, the effect of high prices and poor service has resulted in a high cost and inefficient transport sector.
While other areas of connectivity—roads, ports and telecom—have witnessed high growth, Railways has been left far behind. The growth in these sectors was achieved as a result of new institutions created in these areas. For example, the NHAI was created as an autonomous body and its performance has been dramatically better than that of government departments.
Putting off the process of reorganising Railways—the message behind today’s Budget—will only add to the costs for the economy. An effective and efficient rail transport system is one of the best pro-growth pro-poor policies that the UPA could have given the country.
Ila Patnaik
