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Railways: Time to Invest

Time to Invest Peppered though it was with lyrical couplets, Laloo Prasad

RAILWAYS

Time to Invest

P
eppered though it was with lyrical couplets, Laloo Prasad’s railway budget speech led to some vitriolic exchanges in Parliament when the east-west freight corridor, that was to run all the way to Kolkata, was announced as terminating instead at Sonnagar, Bihar. In many other respects though, the railway budget has been well received with the organisation scripting a remarkable turnaround in first nine months of 2005-06. The bane of this performance is the better capacity utilisation achieved in the freight business – which accounts for 64 per cent of the railways’ traffic earnings – through additional loading of 4 to 8 tonnes per wagon and a reduction in wagon turnaround time. Unit costs of freight traffic have fallen as a result. Gross traffic revenues even exceeded budget estimates by 7 per cent; with freight revenues higher than last year by 18 per cent and passenger revenues by a more modest 7 per cent. The rationalisation of freight tariffs, by slashing the number of commodity groups and classes in the freight schedule, has no doubt made the system easier and more userfriendly. The operating ratio – total working expenses to gross traffic earnings – has improved significantly from 90.1 per cent in 2004-05 to 83.7 per cent in 2005-06; though a change in the accounting system for this year, namely, the exclusion of the principal amount of lease charges from working expenses, has shaved off an additional 3 percentage points from the latter. Fund balances too are at a high of Rs 11,350 crore, with appropriations being made to the capital fund after nil transfers for three years, and the entire budgeted amounts assigned to the depreciation reserve fund and railway development fund. Financially constrained since the early 1990s, with operating ratios as high as 98 per cent, and thus lacking in investible surpluses, the railways are now presented with a tremendous opportunity to invest in the development, safety and modernisation of the network.

The net annual plan outlay, as in the railway budget speech, for 2006-07 of Rs 23,475 crore is about 32 per cent higher than the revised estimates of the previous year. Internal resources will contribute an impressive 46 per cent to the outlay, the exchequer 32 per cent, while the remaining 22 per cent will come from extra budgetary resources, including market borrowings. The emphasis in the budget on investment in higher revenue generating assets, such as, for instance, the proposed 25 per cent increase in wagon manufacture and the introduction of heavy axle load trains on some routes, is in the right direction. Attention has also been given to pricing policy, by offering discounts on “empty flow direction freight” and introducing dynamic pricing on peak seasons and routes. Efforts are on to augment carrying capacity in the loss-making passenger segment as well, and cut unit costs by raising volumes. Travel time on long-distance trains is to be reduced and AC fares have been slashed to enable the railways to compete with new low cost airlines.

In characteristic enthusiasm though, 55 new trains have been announced, 37 have been extended and the frequency of 12 has been increased. Though there is an unambiguous need for capacity enhancement in the passenger segment, it makes little sense to burden an already over-stressed network that has been expanding at an extremely slow pace (9,544 km from 1950-51 to 2002-03) and without significant enhancement of infrastructure and rolling stock. Nevertheless, the railways in 2005-06 fully utilised and even exceeded allocations for the construction of new lines, gauge conversion and doubling. From the target of 219 route km of new lines in 2005-06 (revised later to 185 route km) the minister has set an ambitious target of building 550 route km in the form of eight new lines, but, inexplicably, with a lower budget allocation. Investments in 2005-06 in rolling stocks at Rs 2,016 crore have also been higher than budgeted, though the amounts earmarked for coaches, wagons, cranes and rail cars have been underutilised, with the resulting physical targets also having fallen behind.

Perhaps, most importantly, even as “consequential” rail accidents, or those arising out of avoidable causes, have come down in the last two years, the highest number of accidents continue to be caused by derailment. The progress on track renewals can be speeded up – the target of 4,000 track km for next year is identical to 2005-06. Investments in bridge repairs and signalling and telecommunication works have fallen behind. Besides, the Rs 17,000 crore Special Railway Safety Fund that was introduced in 2001-02 to provide for the replacement or renewal of the railways’ overaged assets over a period of six years, and to which the centre was to contribute Rs 12,000 crore, has not yet been fully funded. It is time now to evaluate the progress made under the fund and ask whether the goals set by the Railway Safety Review Committee in 1998 have been met. The challenge now will lie not only in getting new projects, such as the eastern and western freight corridors, off the ground but also in maintaining, repairing and upgrading the present network that has been neglected for too long.

EPW

Economic and Political Weekly March 4, 2006

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