The lawyer in DV Sadananda Gowda tried to advocate fiscal prudence over mindless populism. Will his successor, Suresh Prabhakar Prabhu, who practised as a chartered accountant after finishing law school, succeed in steering Indian Railways out of the financial mess of its own making?
If the mood in Rail Bhavan is anything to go by, Prabhu can be expected to think out of the box, innovate and consolidate, all at once, when he presents the Railway Budget on 26 February. Handpicked by Prime Minister Narendra Modi for this portfolio, the 61-year-old minister will seek to strike a balance between the social service obligations of the Indian Railways and the demands of running it like a commercial enterprise.
The challenge of turning the behemoth around becomes all the more huge when one considers that except for FY 1979-80, the Indian Railways has always been in the red. In other words, it has consistently been earning less than it spends.
Another issue that is germane to any appraisal of the railways’ financial health is the burgeoning pension fund, which is paid for entirely from its own resources. The pension liability was about Rs 4,000 crore in 2005-06; it is likely to increase to Rs 26,000 crore in the next fiscal. Going forward, if additional revenues are not mobilised, then this huge financial burden can start telling on its health.
The bulk of the railways’ earnings come from its freight business, which is literally its bread and butter. It is freight that cross-subsidises the passenger segment. Unless freight grows eight to nine percent per year, Prabhu will have trouble on his hands and the Indian Railways will not be out of the woods.
Former Railway Board chairman Vivek Sahai tells Tehelka that the compulsions of coalition politics, a phrase made famous by former prime minister Manmohan Singh, has hurt the railways because successive governments have avoided taking tough (read unpopular) decisions. However, unlike some of its predecessors, the Modi government finds itself in a unique position in that it enjoys a brute majority in Parliament and can bite the bullet, as it were, without having to worry about recalcitrant allies; what it translates into is that this government, more than any other in the recent past, can afford to take measures that could have a long-term impact on the railways’ finances.
Sahai flags two issues that would merit Prabhu’s attention: organisational restructuring and removing capacity constraints in running trains. The Bibek Debroy Committee is looking into the first issue in order to eliminate what Sahai calls rampant departmentalism and lack of professionalism. The second issue requires capital-intensive solutions, but it remains to be seen how successfully the railways can mop up additional resources through Public-Private Partnership, Foreign Direct Investment (FDI) etc.
The last time the Indian Railways took a far-reaching decision was in 1993 when it adopted the uni-gauge policy and, before that, in 1987-88, when it introduced computerised reservation in spite of concerns expressed by employees’ unions.
Indian Railways for you
♦ 12,617 trains
♦ 23 million passengers per day (equivalent to moving the entire population of Australia)
♦ 7,172 stations
♦ 7,421 freight trains
♦ 3 million tonnes per day (which is only 31 percent of the total freight traffic in India) or 1 billion tonnes of freight per year (thus joining a select club comprising China, Russia and the US)
♦ total track length of 1.16 lakh km
♦ 63,870 coaches
♦ more than 2.4 lakh wagons
♦ 13.1 lakh employees
♦ operating ratio of 94 percent (in other words, the Indian Railways spends 94 paise out of every rupee earned)
♦ 30,348 level crossings, out of which 11,563 are unmanned
Source: Ministry of Railways