Railway realities

In her second Railway budget, Mamata Banerjee adopts an approach that is in obvious disagreement with the dominant idiom of economic policy formulation.

RAILWAY Minister Mamata Banerjee's second budget was prefaced by a philosophical preamble that clearly set out her differences with the dominant idiom of economic policy formulation. The 16 months spent as Railway Minister, she said, had been an intense learning experience, which had impressed upon her the uniqueness of the public institution she had been placed in charge of. It was also a chastening experience, since it brought her in close contact with the enormous odds that the Railways faced in livi ng up to expected standards of public service. There was a chant growing in volume and intensity that the Railways should learn to operate on commercial terms. But this approach was one that she was in obvious disagreement with, since the Railways were a bove all a "people-centric" and "society-centric" public utility.

In pursuit of this philosophy, Mamata Banerjee has chosen to take certain risks. Her efforts to petition for a higher level of budgetary support from the general exchequer have fetched little rewards. Capital infusions from the general Budget in the year 2000-01 were marginally increased in relation to the original estimates. But the provision made for 2001-02 of Rs.3,540 crores as budgetary support represents an increase of less than 8 per cent.

The Railways, in turn, have curtailed the dividend paid to the Union government from the recommended level of 7.5 per cent to 7 per cent. This would be the second year in a row in which the dividend pay-out is below the norm. Total accumulations under th e Railways' "deferred dividend liability" now amount to Rs.2,500 crores. Without some rather serious revenue raising measures - which have been conspicuously absent in the last two budgets - it is difficult to see this liability being discharged in the f oreseeable future.

Differences in perception have been growing over the last decade and Mamata Banerjee's resolute refusal to play by the "market-friendly" rules that are in vogue indicate that the divergences will only grow. The parlous state of the Railways' reserve fund s underlines this fact. The Depreciation Reserve Fund (DRF), for instance, will end the year 2000-01 at the precarious level of Rs.50.81 crores. This is even lower than the budgeted figure of Rs.76.72 crores. The rate of depletion has been rapid, since t he Railways ended the year 1997-98 with Rs.1,434 crores in the DRF. In the two succeeding years, investments were financed out of the DRF without the normal precaution of replenishing it through revenue earnings. In 2000-01, just enough has been appropri ated to the DRF to meet planned withdrawals - and in the event, this figure has been well below the budgeted levels. The same will be the case in 2001-02.

The situation with regard to the other main internal sources of investment funds for the Railways - the Capital Fund and the Railway Development Fund - is similar. The most striking is the case of the Capital Fund, which was established in 1992-93 and ti ll 1997-98 showed a healthy balance of Rs.1,200 crores. The year 2000-01 will close with no more than Rs.21.13 crores in this reserve and the net accretion in 2001-02, if all goes according to budgetary calculations, will be negligible. Considering the t enuous state of the Railways' revenue and investment calculations, a further depletion in the size of this reserve is possible.

This is a distinctly unpleasant prospect for the Railways' management. Years of under-investment in vital operational areas have begun to take their toll. Plan investment in 2000-01 amounted to no more than Rs.10,002 crores against a budgeted Rs.11,000 c rores. The Plan investment budgeted for 2001-02 is Rs.11,090 crores, though there is no reason to suppose, given the philosophical aversion to rate increases, that this target will be met.

There is also a growing degree of prudence evident in the Railways' borrowing programme. For a few years the resources raised by the Indian Railway Finance Corporation (IRFC) for the purpose of leasing rolling stock for the operational needs of the Railw ays, remained constant at the level of Rs.3,400 crores. For 2001-02, the figure has been cut back to Rs.3,000 crores. The reasons are obvious. Lease rentals paid by the Railways to the IRFC have been growing steadily over the years, and today they amount to over 8 per cent of the gross traffic receipts. When the Railways have to defer dividend payments of the order of Rs.2,500 crores to the general exchequer, the burden imposed by annual lease rental payments in the range of Rs.3,200 crores may well see m irksome.

Conventional thinking in the Railways places the heavier onus of revenue generation on freight movement, while handing out a substantial subsidy - now estimated at Rs.3,400 crores - to passenger movement. This paradigm is now clearly over-stretched. Alth ough freight targets in the last two years have been met, emboldening the Railway Minister to project a rather robust figure for 2001-02, the experience of the preceding years has been rather chastening. The migration of goods movement to other modes of transport may have been halted and Mamata Banerjee has unveiled an ambitious programme to regain the share of the market that has been lost on account of steep freight hikes in the 1990s. But the costs remain high, as epitomised by the operating ratio (o r the ratio of ordinary working expenses to gross traffic receipts). From the relatively reasonable figure of 93.3 per cent in 1999-2000, the operating ratio has risen to 98.5 per cent in the revised estimates for 2000-01 and 98.8 per cent in the budget estimates for 2001-02. Productivity in the Railways is under strain as never before.

The 1990s antidote to the malaise of declining yields was the programme of gauge conversion. By eliminating costs of trans-shipment between different gauges and rationalising the costs of maintaining rolling stock, this programme was expected to provide a boost to productivity levels. Things have not quite worked out that way. Rather, irrationalities and discontinuities in implementation have ensured that a continuous metre gauge line that existed from north to south was fractured, impelling a general m ovement of freight traffic towards other modes. The loss of market share on that account has not yet been recovered, according to many analysts.

The emphasis now is not on the obvious option of increasing passenger rates, which raises questions of inter-class equity and political feasibility, but on non-conventional sources of revenue. One of the schemes thought up by Mamata Banerjee is to lay do wn a nation-wide optical fibre network utilising the Railways' right-of-way to optimal effect. A subsidiary corporation has been formed for this purpose and it is expected to get to work soon, though matters are not exactly moving into an environment fre e of competition. Other programmes, such as utilising the Railways' land and leasing of air-space, are seen to offer some potential, though these remain unrealised as of now.

With all these problems of transition, the worst of the resource crunch is being borne by vital operational areas. In relation to the budget estimates, investments in safety, signalling and telecommunications and track renewals, all show substantial orde rs of decrease in the revised estimates. And yet the pressure to target higher levels of public fulfilment has impelled Mamata Banerjee to introduce new services and launch preparatory work on tracks that will not immediately be viable. With all that, th ough, she had a rough time presenting her proposals in Parliament, in the teeth of the very evident disgruntlement of members from Orissa, Andhra Pradesh and Maharashtra.

"I am not a fortune-teller," said Railway Board Chairman Ashok Kumar, when pointedly asked whether a hike in rates would be imposed after the inconvenience of the West Bengal Assembly elections is surmounted. It would appear, though, that a basic grasp o f arithmetic, rather than any form of clairvoyance, would be adequate to guess what is in store for the Railways.