Six years after separate Railway Budget was dropped, people and passengers are the losers
Separate Railway Budgets were done away with in 2017. Has the move paid off, helped people and passengers? Has it helped Indian Railways become more efficient? The jury is still out
The Railway Budget was separated from the General Budget 98 years ago in 1924-25. This was done in view of the Railways’ need for focused attention on its expansion and modernisation. With the Railways having always been a heavily capital-intensive enterprise subject to high depreciation, corrosion and rusting, close scrutiny by the executive, the media and the public were deemed to be necessary lest Railways’ special needs are overlooked.
It was also reasoned at the time that Railways would always require government support to sustain itself. Private investors would be wary to invest in the capital-intensive entity, it was felt. The last few years have vindicated the assumption as no private investor has come forward to run the Railways despite the various sops provided by successive governments since the liberalisation of the Indian economy in 1991.
Profits are rare in Railways because of the long gestation period between investment and returns. Continued pursuit for private investment has been largely unsuccessful although profitable subsidiaries like IRCTC, IRCON, IRFC and CONCOR have been offloaded partially to private enterprises in keeping with the professed policy of the current regime to privatise profit making public enterprises.
Integration of railway budget with general budget followed recommendations made by a committee on railway reforms headed by economist Bibek Debroy, then a member of the NITI Aayog, the successor to the erstwhile Planning Commission.
Suresh Prabhu was the last Railway Minister to present the Railway Budget in 2016-17 when it was announced that from next year there would be no separate Railway Budget; Arun Jaitley was the first Finance Minister to present in 2017 a Union Budget that integrated Railway budget with the general budget for the financial year 2017-18.
The Union Budget for 2022-23 presented by the Finance Minister on February 1, 2022 in Parliament this week is the sixth combined Union Budget. Whether it has helped Indian Railways in any way is hard to say in the absence of scant information. But two fallouts are clear. Public scrutiny on Railways has all but disappeared; and Railways has drifted from its usual norms with little focus on expansion of railway lines to rural, backward and difficult terrains to speed up development.
Railways’ social responsibility towards poorer passengers, daily passengers and the disadvantaged sections has also taken a back seat. Since 2017 the focus has indeed shifted to profits and politics.
Expansion of railway lines in the constituencies of MPs of the ruling party and those close to the RSS, introduction of new trains for them, extension of trains to longer destinations, increase in frequency of trains, passenger amenities like new halts, improved catering services, cleanliness, modernisation of stations and tariff hikes have been the features of the last five years.
As a result, there has been a massive hike in passenger and freight fare, unprecedented hikes in platform tickets and withdrawal of subsidy to the disadvantaged, deserving and segments like senior citizens for concessional fare. There has been little or no public debate or discussion and most of these changes were ushered in stealthily without public knowledge and away from public glare.
In the process, the Rail Bhawan has taken away substantial part of the privileges of Parliament to scrutinise an important public service. With no separate budget and consequently no separate discussion in Parliament, Railways has emerged as a corporate behemoth bereft of social responsibility and the age-old cross-subsidy for passenger fare and amenities with earnings from freight.
Also, as a result, 18,700 kms of new lines, pending execution for a long time, lie frozen, but not abandoned. They are kept alive in the pink book (work book) with annual allocations of a paltry Rs.1,000 each. Out of this, work on 800 kms have been undertaken on the recommendation of the RSS and to suit the interests of the ruling party.
In the first combined Budget in 2017, major areas of passenger safety, capital and development works, cleanliness, finance and accounting reforms were announced. Listing of railway subsidiaries, IRCTC, IRCON and IRFC in bourses were the other announcements. In 2018, the outlay of Railways was increased to 1.48 lakh crore from 1.43 crore in the 2017 budget. It provided for capacity creation, track renewal, doubling, redevelopment of 600 stations and gauge conversion. Development of world-class trains with Train 18 and Train 20 with Wi-Fi, CCTVs across trains and stations were also announced.
In 2019, the allocation was increased to 1.6 lakh crore. Downsizing of Railway Board from eight to five members was also announced in the Budget.
In 2020, the focus was on the private sector for operating trains and redeveloping stations. It was also announced that more trains on the lines of Tejas Express would be introduced on major tourism routes with 150 private trains within the next three years. There is little or no information whether the target is being met.
During 2021, Railways was allocated Rs.1,10,055 lakh crore, out of which Rs.1,07,100 lakh crore was for capital expenditure. There was a proposal for taking up 263.7 km long Sonnagar-Gomoh section of the eastern Dedicated Freight Corridor (DFC) in the PPP (Public-Private-Partnership) model. New DFC routes, East Coast, East-West, and NorthSouth were also proposed.
In the Budget 2022-23 announced this week, allocation for Railways is substantially higher at Rs.1,40,367.13 crore that include seven engine (multi-modal transportation) growth to boost the Atmanirbhar dream including 400 Vande Bharat trains, with aluminum built high speed lightweight coaches, first envisioned in the 12th Five Year Plan by the Planning Commission as a pilot project.
A major worrying sign is however the worsening Operating Ratio (OR) of Indian Railways indicating enormous losses being incurred. It is earning less than what it has been spending. In the Budget document for the 2022-23 financial year, the ratio, it is claimed, will remain the same at 96.98 paise as in the year 2021-22. The OR means that the Railways is spending 96.98 paise to earn a Rupee.
According to several former Financial Commissioners of the Railways, the OR is being fudged to hoodwink the public since the ratio indicates the financial health of Indian Railways. In fact, Railways’ expenditure is higher than its revenue. Expenses include administrative expenses, salary for staff, repair, maintenance, operations, fuel, energy costs, etc. and contribution to the pension fund and Depreciation Reserve Fund (DRF).
During the last two years, expenses have gone up but revenue has increased only marginally. The ratio that used to be in the range of 90 paise, they claim, climbed to 115 paise in 2019-20. Government, however, did some accounting jugglery, met the contribution to the pension fund with borrowings and budgetary support from General Exchequer and reduced contribution to DRF drastically while artificially showing OR to be around 98 paise.
In 2020-21, due to the pandemic and the lockdown, the actual OR climbed even higher to 131, meaning thereby that to earn one Rupee the Railways spent 131 paise. In 2021-22 again, according to projected revenue so far, the OR is expected to be around 120 paise. The trend points to continuing deterioration.
It is considered a good move to provide higher allocation in railway infrastructure to drive growth of the national economy. However, the flip side is the interest burden of the investment that Indian Railways started making since 2015 by borrowings will start impacting it adversely in coming years after the initial moratorium ends.
With OR already so high, this could put the Railways in a debt trap in the near future. Current debt burden on railways is of over Rs 7 lakh crore. This did not receive focus in the Budget for 2022-23. Besides, while the cost of logistics and transportation worldwide is 6-8% of the value of goods moved, on Indian Railways it is 14%, which has not been addressed in the Budget. However, it is learnt that the Railway Board intends to bring it down to 11%.
Yet another problem of the railways is that there is no cost benefit analysis post completion of development projects like new lines, 100 per cent electrification, modernisation of stations etc. In the low-density traffic, low revenue from freight and passenger earnings is continuing to be a drain on its financial health.
Merger of the rail budget with the general budget has been detrimental to public interest as allocation for railways receive passing mention in the media without the detailed and comprehensive analysis and evaluation done when separate Railway Budgets were presented. Railway users consultative machinery at Divisional, Zonal and Ministry levels was also abolished by the current regime. Periodical consultative inputs used to be collated and used in the annual rail budget for improving rail services.
People are deprived of the right to information about what the government was doing for them regarding further passenger amenities, expansion of railway network and services in their respective areas, introduction of new trains, etc.
It is mischievous that within the four walls of the Rail Bhawan quietly, the government increases fare and freight rates, curtails rail services arbitrarily with no public consultation or discussion with even the MPs concerned.
MPs, political leaders, civil society activists, social workers, NGOs and others flock now to the Ministry for assistance as now all such matters are directly dealt with there. Earlier, policies were disclosed in Parliament and approved by Parliament following extensive discussions, which sometimes continued till late in the evening to satisfy MPs. Now, there is scant public or media scrutiny of the Railways. It bodes ill for democracy and accountability of the Railways to the people.
Currently, Indian Railways is preoccupied with preparations to compete with the private sector for better services, accounting reforms to ensure numbers are transparent, establishing an independent regulator, devolution of decision making and decentralisation of the centralised structure in Rail Bhawan. The National Monetization Pipeline also had asset monetization plans for Indian Railways and plans for the corporatization of Railways’ production units.
But once again, even Parliament does not seem to be aware of the changes in the offing, for better or for worse.
(This article was first published in National Herald on Sunday)