Opinion Derailing reform

If Mamata wanted to lend her Vision 2020 credibility,she should have used this Budget to move Indian Railways away from populism and non-core activities (like running hospitals and bottling water) and towards acquiring the necessary savings and financial strength. As a spin-off,it may have also helped her gain credibility as a politician who would be able to bring genuine economic change to a moribund West Bengal if she takes the office of chief minister,as is quite likely in 2011.

But in the end,Mamata chose to disappoint,and in effect trashed her own vision document. What is worse is that the next Budget,likely to be presented in the run-up to the Bengal election,is likely to be even more populist than this one.

One bit of populism that has become almost routine for all railway ministers,including Mamata this time,is to leave passenger fares untouched: there have been no increases in seven years. Now,losses on account of low passenger fares are running in the range of Rs 14,000 crore ever year — hardly a good strategy if you wish to acquire financial strength in order to invest in future infrastructure.

Of course,the political economy of not raising fares takes a very one-dimensional view of passenger satisfaction. It seems to assume that passengers are continually satisfied by the shoddy quality of services that they are provided — outdated rolling stock (even our new coaches are using designs of the 1980s),dirty trains,substandard stations,slow speeds — as long as prices are where they are. There is no way of knowing that this is indeed how rail users perceive the choice. Since there is no competition,it isn’t possible for customers to show dissatisfaction by switching services,like many did by moving away from Air India to private airlines. So it seems we are destined to get bad quality at an apparently subsidised price — perhaps one of the last remnants of socialism in our economy.

Mamata has also chosen not to raise freight charges (she has in fact reduced some),the obvious way to make up for losses on passenger services. And if Indian Railways isn’t making money — something that Mamata has herself claimed in her White Paper,but has done little about in her budget — then all the promises of station upgrades,higher speeds,and new rolling stock are simply hollow.

Still,there is another problem in IR that is perhaps even more troubling than populism on fares — the massive expansion of its non-core activities in recent years. The most telling statistic on this front,however,doesn’t come from the Railways Budget but from the Planning Commission. In the period of the 10th Five-year Plan,Indian Railways’ investment in PSUs was only 4 per cent of its total plan expenditure. In the 11th Plan,this spending had shot up to comprise 17 per cent of the Railways’ total expenditure.

Compare this with the proportion of expenditure on rolling stock,which came down from 32 per cent to 26 per cent of total expenditure. Or the proportion spent on new lines (down from 11 per cent to 7 per cent). Or the proportion spent on track renewals (down from 18 per cent to 10 per cent). Vision 2020 would surely require moving in the opposite direction.

One indicator of the fact that Mamata intends to continue in the wrong direction is evident from her intention to set up six clean drinking water plants to provide cheap bottled water. That the railways should invest precious money to manufacture bottled water,even if in a public-private partnership,is simply ludicrous. It makes greater sense to completely outsource this to a private player — or multiple private players.

Also,should Indian Railways,in its apparent precarious financial state be setting up a “Cultural and Heritage Promotional Board” to construct museums and cultural centres in West Bengal,continuing a trend set by almost all railway ministers to dole out patronage to their home state?

Should Indian Railways invest in setting up and running 500 new hospitals as announced by the minister? Would it not be better to save the investment costs and simply offer all employees health insurance that can be used in other hospitals?

Instead of spending precious resources on what are obviously non-core activities,the railways should have considered divesting stakes in the 11 PSUs that fall under its remit to raise the resources necessary for upgrading infrastructure to Vision 2020 standards.

Mamata Banerjee has made it clear that the railways will not be privatised. But,at the very least,it must be allowed to function as a corporate/business entity focused on making profit out of its core competence — and investing that profit to upgrade — rather than a twisted version of the ministry of welfare,or a distant ministry of the government of West Bengal in New Delhi.

The writer is a senior editor at ‘The Financial Express’