The Finance Minister has dressed up the Indian Railways’ balance sheet, indulged in tokenism and in grand projections

Print edition : February 26, 2021

With traffic suspended in the wake of the COVID-19 pandemic, railway workers undertaking repairs to the track on the bridge across the Krishna in Vijayawada on July 10, 2020. Gross underfunding has meant that projects for modernising and refurbishing of existing assets have languished because of prolonged neglect Photo: K.V.S. GIRI

Stranded migrants from Rajasthan arriving by Shramik special train at Danapur station on May 2, 2020. Photo: ranjeet kumar

The budget reveals a shocking collapse of the Railways’ revenues and shows that no significant investments are likely to be initiated to build its neglected infrastructure.

IF Nirmala Sitharaman’s third budget was heralded for having supposedly given an impetus to the building of infrastructure assets, its effect on the Railways was nowhere in evidence. Instead, there is only continuity with last year’s efforts. Like last year, she has dressed up the Indian Railways’ balance sheet, indulged in tokenism of the most bizarre kind and in grand projections that, based on past experience, are unlikely to see the light of day. As a result, the Finance Minister has squandered an opportunity to provide an impetus to the economy.

As a result of the Finance Minister’s approach, the Railways is unlikely to initiate any significant investments that would compensate for the prolonged neglect of its infrastructure. Worse still, peeling away the layers of dressing on the balance sheet reveals a shocking neglect of railway finances.

But before this, how have the Railways performed in the year of the pandemic? More importantly, what do the projections for the 2021-22 indicate about how sanguine the Finance Minister is about a quick recovery. Gross traffic receipts of the Railways, which were projected to increase by 29 per cent over 2019-20 levels—amounting to reach Rs.2.26 lakh crore—actually fell to Rs.1.46 lakh crore, a fall of more than 35 per cent.

Of course, the Finance Minister was not to be blamed for this, even if the failure of her colleague, Railway Minister Piyush Goyal, was criticised roundly during the height of the pandemic for abandoning millions of migrant workers in the crisis. Nevertheless, the collapse of railway revenues was not something the Finance Minister could have avoided.

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What is interesting, however, despite all the talk of the V-shaped recovery within the government, is one finds no affirmation of this in the budget. That is, railway finances do not appear to indicate the expectation of a smart and quick recovery. Gross traffic receipts in 2021-22 are projected at Rs.2.17 lakh crore, 4 per cent lower than the budget estimates for the current financial year. Earnings from passenger traffic are to remain the same as that projected last year; more crucially, freight earnings in 2021-22 are to be 6 per cent lower than the budget projections made last year.

In physical terms, too, which gives a better idea of what to expect next year, it is clear that the Railways is slowing down. As for goods traffic, the Finance Minister had envisaged that the Railways would move 719 billion net tonne route km (ntkm) of goods during 2019-20; instead, only 660 billion ntkm is expected to be moved in the current year—a slippage of 8 per cent. More ominously, it is expected that only 715 billion ntkm of freight would be moved in 2021-22, lower than the budget estimate for the current year made last year.

A similar declaration is visible in the case of the movement of passengers. Last year the Finance Minister projected that the Railways would achieve 1.21 trillion passenger km—a measure of the number of passengers travelling as well as the distance they travel. Instead, partly as a result of the pandemic and partly because of the Railways’ obstinate refusal to move stranded people during the lockdown, it achieved only 119 billion passenger km—a decline by a whopping 90 per cent of the original estimate.

No longer an engine of growth

Indeed, the Finance Minister’s projection for 2021-22 are in sharp contrast to the cheery optimism in the government that India is hurtling towards normalcy. Passenger traffic is expected to be more than 9 per cent lower than levels projected initially for the current year. But even more revealing is the data furnished on fuel consumption. The Railways’ spending on fuel is projected at Rs.23,815 crore in 2021-22, compared with Rs.29,858 crore, which was originally estimated for the current year—a drop of more than one-fifth. Since this projected decline is much higher than the projected decline in either passenger or goods traffic, one wonders at the credibility of these numbers. With fuel prices rising because of higher tax levies, for which the Finance Minister is directly responsible, one wonders how the fuel bill has been set so low at a time when fuel prices are incessantly increasing, irrespective of what is happening in international oil markets.

Perhaps the answer lies in the government’s plans for railway fares, especially passenger fares. Despite the flurry of notifications from the Home Ministry in the past few months relaxing the conditions governing activities of economic agents, the Railways has not “normalised” its operations, particularly in the movement of passengers. As of now, it only runs “cloned” trains, which run on the same routes and with the same stoppages they had before the pandemic. These trains are called “special” trains bearing the same train numbers but with a 0 prefixed to the original number. Piyush Goyal seems to be sitting pretty because no category of passengers (senior citizens and students, among others) is being allowed to avail of concessional fares. It is quite possible that suburban train services are unlikely to resume on the scale they were operated before the pandemic.

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Quite apart from the socially regressive consequences of the curtailment of rail services, there would also be a negative economic impact. Since rail is far superior to any other mode of transport, especially for moving quickly large volumes of people and goods, this would result in greater inefficiencies in the economy. Or, is it that the Narendra Modi government has chosen to hold back publicly operated services in order to leave the space open for private goods and passenger train operators who are expected to enter the fray?

Dressing the books, continued neglect

Nirmala Sitharaman appears to have hit upon a novel means to obfuscate the numbers in her Budgets. Last year, too, she resorted to this method of using moving targets to confuse people looking to find normative targets against which the Railways’ performance could be compared. In her first Budget, she projected a 12-year-plan for the Railways. Before her last Budget she presented the National Infrastructure Pipeline (NIP), in which the Railways was a constituent, as some kind of a normative yardstick (Frontline, February 28, 2020). This year she has moved on; she now has a brand new plan, the National Rail Plan.

For the next fiscal, 2021-22, the capital investments of Rs.1.07 lakh crore has been budgeted, which has been widely appreciated. But here, too, there is a catch. The Revised Estimate for the current year amounts to Rs.29,000 crore, which is Rs.41,000 crore lower than the Budget Estimate of Rs.70,250 crore made last year. If it is to be made good in 2021-22, the additional amount of Rs.60,000 crore of the Rs.1.07 lakh crore is far less than the past allocations. Moreover, Rs.18,000 crore is to come from the rail safety fund, which, logically, ought not be available for general capital expenditures. Where is the extra effort for the proposed National Rail Plan? According to the plan, whose overall size is Rs.38.5 lakh crore, investments of Rs.1.17 lakh crore were needed to be made annually between 2021 and 2026.

Even safety targets have been a casualty. After several derailments, accidents and fatalities, a national rail safety fund, the Rashtriya Rail Samrakshana Kosh (RRSK), was established. It was expected that Rs.1 lakh crore would be spent over five years, starting 2017-18. According to the Comptroller and Auditor General of India (CAG), funds to the tune of Rs.10,000 crore were being sourced from the cess on diesel, apart from Rs.5,000 crore from the Railways’ own depreciation fund. Actual budgetary support has been only Rs.5,000 crore.

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Significantly, in none of the years since 2017-18 has allocations ever touched Rs.20,000 crore, the normative minimum that has been prescribed for safety-related projects. It is obvious that this gross underfunding has meant that projects for modernising and refurbishing of existing assets such as track and signal renewal, signal, bridge repair, and several other vital railway assets have languished because of prolonged neglect.

This Budget is truly daring for the manner in which the accounts have been dressed up. Just three points need to be illustrated to make this clear. First, the Finance Minister, faced with a gaping hole in her balance sheet, has chosen to draw heavily from committed expenditures such as pensions, to plug the huge gap. Over the last two years, roughly Rs.80,000 crore has been drawn from the Pension Fund, although pension payments are due every month to retired employees. Given that these are unavoidable payments that reflect contractual liabilities to erstwhile employees, why did she have to do this?

Accounting ploy

It appears that in order to keep the plan outlay at the previously set levels, she has used this magnitude of funds from the Pension Fund as a purely accounting ploy, knowing full well that pension payments are unavoidable. Doing this has helped her convey the optics of having heroically salvaged plan outlay despite the grave adversities of the pandemic. But there is more to this orchestration. She has also provided a “special loan” from the general Budget. Tucked away in the maze of the Budget documents is the justification for this: “COVID related resource gap in 2020-21 and to liquidate (the) adverse balance in Public Account in 2019-20 to Pension Fund.” Clearly, therefore, if COVID only surfaced in India in 2020, pray, what was so “special” about the previous year? The answer is obvious: The Finance Minister needed to replace the money that she had drawn from the Pension Fund in 2019-20, to the tune of about Rs.30,000 crore for that year.

Second, as she did last year, this year, too, she has indulged in extreme tokenism. She has provided Rs.1,000 crore each to 274 new projects, just like she did last year. Incidentally, these 274 are the same projects. One wonders when a project with funding to the tune of Rs.2,000 crore spread over two years will see the light of day.

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The Finance Minister has been so desperate that she has even drawn a little over Rs.500 crore from the Nirbhaya Fund. It tuns out that these were for installing CCTV cameras. After all, since such cameras serve a general security need in the Railways, without any being specifically installed for the safety of women passengers, one wonders why Nirmala Sitharaman had to dip into this fund for her requirements. The liberties she has taken with the balance sheet have real-world consequences. A hint of what is in store is provided in a footnote tucked away in the maze of documents. It points out that if the “special loan” had not been provided, and if the Pension Fund had not been raided, the Railways would have been in dire straits financially. The footnote points out that the Railways’ operating ratio, which is a measure of how efficiently it has deployed resources towards generating earnings, would have been pathetic without the window dressing. The ratio would have been 114.19 per cent in 2019-20 and a much worse 131.49 in the current year, instead of the more benign 98.36 per cent and 96.96 per cent respectively, if this had not been done. Effectively, this means that the Railways spent Rs.131.49 for every Rs.100 it plans to earn in 2020-21, instead of the Rs.96.96 the Finance Minister has indicated, if the “special” loan had not been extended.

In effect, in a year in which the Finance Minister would have been forgiven for failing to meet targets, she could have chosen to level with Indians by laying out the true picture of railway finances. Instead, she has chosen to obfuscate. The casualty is not just India’s largest enterprise but the people and the economy at large.

R. Elangovan, a retired railway employee, is vice president, Dakshin Railway Employees Union.