Railway budget 2001 - a slap on the face

If ever there was an example of the nation’s interest being sacrificed at that altar of narrow political interests, the railway budget announced yesterday by the minister of railways, Ms. Mamta Banerjee, would top the list.

While the nation was aware of the pulls and tugs at the ministry, what is shocking is the blatant manner in which the minister has exercised her authority and thrown economic principles out of the window. The result of her populism is a subsidy bill of Rs. 5,600 crore – an amount that is only going to further weaken the financial condition of the Indian Railways.

Once the pride of India and a great showpiece to the world, Indian Railways has steadily gone downhill. Successive railway ministers have, in their budgets, crippled the railways. Today, the biggest problem with the railways is its inability to generate finance internally in order to meet its cash requirements.

Its traditional cash - cow, commercial freight traffic, has been steadily declining over the years, thanks to stiff competition from road transportation. According to the Rakesh Mohan committee, the annual growth rate, measured in "net ton kilometers" of bulk commodities transported by railways, has declined from 5.33 per cent between 1984 and 1991 to 1.86 per cent between 1991 and 1999. Moreover the Railways has also lost out on budgetary support, which has declined from 75 per cent in the fifth plan to 23 per cent in the eighth plan. Finally, with Ms. Banerjee adamant on not resorting to any passenger fare hike, revenues on this account continue to take a beating.

If the revenues have been going down, the cost of operating the world’s largest network of railways has been steadily inching upwards. According to Rakesh Mohan Committee in the last four years annual growth in costs has been 14.3 per cent and in the last two years 18.2 per cent. As against this, its annual growth in revenues has been 12.3 per cent in the last four years and 12.9 per cent in the last 2 years. There can be no clearer evidence of revenue-expense mismatch, than this! According to the Committee, if the railways continue to perform in this fashion it will be faced with an operating deficit of Rs 3,700 crore by the year 2003. It further states that in the next sixteen years, railways will have to borrow about Rs 1 lakh crore to meet its cash requirements, if it continues to operate like this!

New projects ignored

The railway minister has chosen to ignore new projects largely because there is no money in the kitty to complete even the ongoing projects. In fact outlay for capital fund has been bought down to a measely Rs 17.43 crore from about Rs 4,000 crore a few years back. According to figures cited by her while presenting the budget, the Railways has a "total shelf" of Rs 32,400 crore worth of "on-going projects" which it has been unable to complete over a period of time. These comprise of "new line projects" totalling around Rs 20,000 crore, "gauge conversion projects" amounting to about Rs 9,100 crore and "line doubling projects" requiring about Rs 3,300 crore. She said, " After having seen the implementation for the last one year, I have reached the conclusion that adding new projects to the already sanctioned large shelf of on-going projects will only aggravate the problem. Therefore, I have taken this bold decision of not including any new line project in next year’s budget!"

Brave decision indeed! But who is going to account for the massive amounts of capital that lie idle in these incomplete projects? Further, independent reports project investments blocked in incomplete projects of the Railways at a mammoth Rs 60,000 crore. These comprise of 18 metro projects, 21 electrification schemes, 73 gauge conversion plans, 81 new lines and 87 track doubling projects. Is the railway minister even considering the interest-impact of this blocked capital?

No funds for maintenance, safety and security

With each passing year, the safety record of the Indian Railways has been taking a beating. The Justice Khanna committee, appointed to look into the safety issues, had estimated that the Railways will have to invest about Rs 15,000 crore over a 5-7 year period to improve its safety standards. This investment will be in the areas of track renewals and installing and replacing signaling and telecom equipment.

Yet, the allocation towards track renewals for the current year has been a measly Rs. 2,050 crore, up 26 per cent over the previous year’s figure of Rs 1,633 crore. Further, the allocation towards signaling and telecom equipment has also been a mere Rs.1,000 crore, up by 25 per cent over the previous year’s figure.

While admitting that track renewal and signalling and telecom equipment are priority, Ms. Banerjee accepted the fact that the current allocations are insufficient and would only go to meet the current needs. These allocations will not cater to any arrears for which additional funds would be required.

Despite carrying over 1.6 million employees on its payroll and face a crippling wage bill, the minister has proposed to enhance outlay on staff amenities by as much as 45 per cent.

Ms. Banerjee has compounded the Railways’ miseries by increasing the allocation for new lines to Rs. 1,015 crore for 2001-02 from Rs. 702 crore in the revised estimates for 2000-2001. Provision for passenger amenities has been raised to Rs. 200 crore from Rs. 144 crore while for track renewal Rs. 2,050 crore has been provided against Rs. 1,633 crore last year, showing a substantial increase of 26 per cent.

From where is the Railways going to fund these extravagant plans?

The budgetary support for the annual plan has been kept at last year's level at Rs. 3,540 crore, market borrowings has been placed at Rs. 4,000 crore. The minister has been generous is saying that the Railways can meet the balance Rs. 3,550 crore through a combination of normal internal resources, non-traditional revenue generation and contribution from general revenues from railway safety works. But history has shown that the non-traditional revenue sources have never lived up to their promises. If the minster is betting on the use of Railways’ land by private sector players building a data network backbone, it is one bet where the odds are stacked against the minister!

If this continues, Indian Railways, long touted as the lifeline of the country, will see its hearbeats stop!

Budgetary highlights

Passenger fares

• No increase in passenger fares across the board.
• 24 new passenger trains to be introduced.
• Seven peak season trains to be introduced.
• Frequency of nine trains will be increased.
• Two trains to be extended to cover more stations.
• Concessional monthly season ticket for people below poverty line.

Freight

• Three per cent increase in freight fares, adjustment in tariff will generate Rs. 500 crore.
• Sugar, edible salt, grains, pulses, oils, kerosene, newspaper, magazines, medicines, fruit and vegetables, LPG and urea are exempted from the hike.
• Freight rate of coal up by 2 per cent.

General features of the rail budget

• Annual planned outlay at Rs. 11, 090 crore, marking an 11 per cent increase.
• No hike in budgetary support.
• The government target for non-traditional sources of earnings kept at Rs. 1,000 crore -- Rs. 700 crore by way of leasing of 'right of way' of optic fibre cables, Rs. 200 crore from commercial exploitation of land and Rs. 100 crore through commercial publicity.

Safety and security

• Outlay on safety related work is Rs. 3,000 crore.
• Safety grant of Rs. 15,000 crore will be pursued.
• There will also be a high-level task force to examine safety issues.

Budget at a glance

(Rs in crore)

$ -- Transferred to deferred dividend liability account