With 13.34 lakh employees the 162-year-old India Railways (IR) is the world’s seventh largest employer. It has over 13 lakh pensioners to serve. With global meltdown, the IR is at a crossroads. In this context, the Rail Budget-2016 is to be presented to Parliament on February 25. Will the budget come up with some path-breaking measures or follow the same pattern that it had been following for past yearsIJ
The biggest challenge before the IR is that it will have to shoulder the likely burden of the Seventh Pay Commission Award on salary hike to the tune of Rs32,000 crore. The major components of revenue expenses of IR have been salary cost and pension (51 per cent) followed by fuel and energy bill (31 per cent).
The IR’s 67 per cent of the earnings come from freight and 27 per cent from passenger services. logically, setting of tariffs at levels which can meet the operating and investment needs of IR is sine qua non to the viability of IR’s business model. But the reality is that freight and fare structure suffers from the following dichotomy. On the one hand, there is low recovery of costs on the passenger segment, and on the other, there is a high freight rate. This is evident from the fact that in 1999-2000, the cost per km of passenger service was 35.83 paise while the passenger earnings for the same distance was 22.21 paise, a recovery of only 62 per cent of the cost from passengers.
By 2012-13 the situation went from bad to worse as the cost per km went up to 57.76 paise against the earnings of 28.52 paise. The cost recovery further came down to less than half, i.e., 49.4 per cent. In the process, the estimated losses in passenger segment have mounted from Rs6,159 crore in 2004-05 to Rs30,000 crore in the current fiscal. This situation is primarily on account of sharp increases in input costs and no commensurate increase in fares over the same period.
At the same time, in freight services the cost recovery was 129 per cent in 1999-2000 which went up to 163.7 per cent by 2012-13. To add further to its woes, the IR incurs losses on uneconomical rail lines. So, the operating ratio (paise spent to earn a rupee) is around 90. There is little surplus left to invest on infrastructure.
On the other hand, enhanced freight rates have not helped attract more traffic to the Railways and have, in fact, led to traffic moving to road in certain segments.
The budgetary support for railway expansion works has declined over the years. Consequently, Network expansion and modernisation have not happened at the requisite pace, leading to an erosion of the share in national freight and passenger traffic. In the past 25 years, the Railways has added a meagre 7 per cent to its network while roads have more than doubled during the same period.
Historically, there is a mismatch between the growing demands for rail services vis-a-vis the available rail infrastructure. During last 64 years while passenger traffic has increased by 1642 per cent, freight loading has gone up by 1344%. As against that, rail network has increased by 23 per cent only. Unlike in most European and American railways, the rail track in our country is shared between freight and passenger trains.
Rail projects of a whopping Rs5 lakh crore are pending as on date. Out of those, projects worth of above Rs2 lakh crore are of high priority works like doubling, new lines, traffic facilities, signal and telecom works, electrification, etc. The non-commissioning of these critical works are having a direct bearing on the line capacity, which in turn are affecting the earnings and optimal utilisation of railway assets.
Further, due to constant demand for new rail lines from different parts of the country, a large number of socially desirable but economically unviable projects have been sanctioned creating huge throw-forward liabilities.
Till recently, the Railways has been thinly distributing funds to a plethora of incomplete projects. That has caused considerable time and cost-overrun to the projects. During the last 30 years, out of 676 number of sanctioned projects, only 317 could be completed. For example, the Talcher-Sambalpur rail line took more than 15 years to get commissioned, the cost going up by over 700 per cent.
Keeping these stark realities in mind, Railway Minister Suresh Prabhu in his last budget did not announce a single new rail line project. In the 2015 budget, projects were prioritised and funding assured for the projects which could be completed early. In the process, the projects in Odisha got a record allotment of over Rs 2,500 crore.
Budgetary support from the Union Government will account for 30 per cent of the total investments and 29 per cent will be debt and 15 per cent of the requirements will be through Public-Private Partnerships. In the process, the Railways is borrowing a staggering Rs1.5 lakh crore from the lIC at competitive rates and terms.
The Railways is also raising resources in innovative ways: FDI in new-age locomotives and coaches, long-term low-cost debt from the lIC, leveraging railway land around stations to develop commercial real estate via private sector partners and setting up new corporations for new projects.
Four more corridors, including Kharagpur-Vijayawada (passing through coastal Odisha) will be developed.
The IR has announced its plan of running Talgo trains from Spain with a speed of 160 to 200 km per hour on the existing tracks. It is also planning to redevelop about 400 railway stations. The cost of developing stations is to be met through real estate development of land around and airspace above stations. To expedite the augmentation of railway capacities 100 per cent private sector investment has been allowed in infrastructure areas. With the help of Japanese funds and technology India’s first 500-km Bullet Train project, connecting Mumbai to Ahmadabad at a cost of Rs98,000 crore is coming up.
Already projects worth Rs16,000 crore have been completed through PPP mode. Few more PPP projects are being executed, including Haridashpur-Paradeep line and Angul-Sukinda line in Odisha. The Odisha Government has made a major equity contribution in the Angul-Sukinda and Haridashpur-Paradeep projects.
The Ministry of Railways has come out with a structured PPP policy with five models to attract State Governments and private players. The Odisha Government has taken the lead by signing an MoU with the Ministry to form a mother SPV to fund construction of lines in the State’s backward areas.
Prabhu has been focusing to make the organisation efficient, transparent and customer-friendly. A Central Cell has been set up to monitor different performances parameters from ground level. GMs and DMs have been sufficiently empowered. The Minster has started a twitter invoking tremendous response. The IR has pioneered deployment of bio-toilets.
However, the IR has some serious challenges on hand. In last couple of years, the land cost in most States has increased manifold. What is more important is that the process of acquisition has become lengthier and stiffer in the wake of the land Act-2013. A number of projects are suffering due to delay in clearances from forest, wildlife, etc. Many projects have remained nonstarters due to law and order problems.
There is a strong case for suitable hikes in passenger fares. But the political compulsion may not allow the Minister to do it. At the same time, the Minister does not have the luxury of getting Government subsidies to compensate the loss on passenger services as is given in European countries. Prabhu is likely to focus on innovative means to generate revenue.
He may unveil a plan to cut expenses and, at the same time, increase non-tariff revenue like such as advertising, parcel-leasing, export of railway equipment and commercial exploitation of railway land. The Railways are planning to reduce the energy bill by 20 per cent. The emphasis will remain on strengthening the rail network, rather than announcing new projects. The freight rates may not be changed.
From the Odisha perspective, in view of the economic and industrial importance of the ongoing rail projects in the State there is every possibility that the allotments will further go up in the budget.
The focus will be how Prabhu will lift the Railways from a state of underinvestment to a virtual state of adequacy in expansion and growth. Prime Minister Modi seriously thinks that a robust railway can greatly contribute to the country’s economy. Hence, the next few years should change the face of the IR. Faster trains, modern trains, swanky stations, skilled staff, should be the Railways of tomorrow.
(The author is Managing Director of Angul Sukinda Railway ltd. The views are personal.)