Updated: February 26, 2015 12:00:08 am
The point of interest in this railway budget is the manner in which Railway Minister Suresh Prabhu plans to address the high working ratio, which hovers around 90 per cent, implying that to earn one rupee, 90 paise is spent. If depreciation is added to the working ratio, one gets the operating ratio, which will clearly be beyond 100. There is a general belief within Indian Railways that the operating ratio has been above 100 for some time. No organisation can exist if it spends more than it earns, year after year.
The extreme populism adopted by some ministers over the last two decades stalled routine increases in passenger fares. To meet expenses, Indian Railways was forced to increase freight traffic, sometimes twice a year. This populism has brought the railways to the present condition. Prabhu is, of course, aware of these issues and appointed former secretary (financial services) D.K. Mittal to head a committee, which gave its recommendations last month, indicating a framework for increasing passenger fares along with rising costs. These recommendations will not solve the immediate problems — raising passenger fares to increase revenue immediately and holding on to the hike in the face of demands for a rollback. It has to be seen what Prabhu actually does.
The second issue is the introduction of passenger trains for political considerations. R.C. Acharya, a former member of the Railway Board, recently observed that a passenger train earns Rs 450 per kilometre at the most, against Rs 4,500 per km for a goods train. Will Prabhu lean towards goods trains or take the well-trodden path and add passenger trains? In the recent past, railway ministers have not played the role they ought to.
Evidently, the way forward for Indian Railways depends on how the minister decides and not on the decision-making of the Railway Board. This is because of the way the governance of Indian Railways is structured. It is a commercial organisation owned by the government and run as a government department, which make the railway minister the head of the organisation. He or she therefore has a dual role, as minister and as the head of a large commercial organisation.
The Railway Board is structured as an operational body for running trains, managing the day-to-day functions of Indian Railways. Parliament takes the decisions normally taken by shareholders and the Union cabinet plays the role that a company’s board usually does. The minister becomes managing director because he is the only one present in Parliament and meetings of the cabinet. Prabhu will have to take the decisions a managing director usually does to keep the company in sound financial health.
But even greater challenges await him in the near future. The emerging markets, which used to be seen as global engines of growth, are under a shadow of gloom today. The Chinese economy has slowed, Brazil is suffering stagflation and Russia is in recession because of sanctions and the fall in oil prices. South Africa is plagued by inefficiency and corruption. In this picture of gloom, there is only one exception, and that is India. The country could become a global high flyer if it gets some things right. It has been estimated that India grew at 7.5 per cent in 2013-14 and could sustain growth at this rate. If that does happen, Indian Railways will have to move much faster than it does at present. Normally, demand for transport grows at a faster rate than the overall growth rate.
Therefore, the challenge of improving the financial health of the organisation will be a small problem in comparison with the challenge of keeping up with economic growth. Capacities will have to be increased quite quickly. How Prabhu does this when Indian Railways remains a department of the government and run by a civil service is a question that he will have to ponder and answer.
The writer is former general manager, Indian Railways, and former member, Central Administrative Tribunal.
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