Rail Budget 2013: Slow train or fast train?

Feb 26 2013, 12:12 IST
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Railway Budget will decide UPA’s reform credentials. (Reuters) Railway Budget will decide UPA’s reform credentials. (Reuters)
SummaryFE Editorial: Railway Budget will decide UPA’s reform credentials.

Railway minister Pawan Kumar Bansal surprised when, out of the blue, he announced a 10-12% hike in passenger fares, a few months after taking over when the Trinamool Congress vacated the ministry along with the government. Perhaps the UPA was, the popular view went, really serious about reforms—after all, it hiked Railway fares quite soon after it got back control of the ministry; more so, considering Dinesh Trivedi was sacked from the job by party chief Mamata Banerjee for attempting a smaller hike. Problem is, around half the hike got neutralised when, a week after the hike was announced, the UPA raised prices of bulk diesel by 27%. This then left the Railways where it has been for a long time—a tired, antiquated and unsafe organisation, creaking at the seams, unable to go any direction except backwards.

Take any Railway fund you can think of—the Depreciation Reserve Fund or the Capital Fund, for instance—and the story is the same of rapidly depleting funds, of various Railway ministers such as Mamata Banerjee just refusing to contribute to the funds in a spurious attempt to try and balance the books. The Depreciation Reserve Fund, for instance, dipped from R7,100 crore in FY09 to R4,600 crore the next year—while the FY13 Budget planned on raising this by around a third, the chances of this happening are bleak given the Railways missing its revenue targets. The Capital Fund, used for creating new revenue-generating assets, similarly, got depleted to nearly a third in FY09, got reduced to zero the next year—from a mere R942 crore in FY12 (see story on page 1 today), the Budget hopes to raise this to a mind-boggling R5,000 crore this year.

While the Railways needs at least R14 lakh crore of funds over the decade for modernisation, it has no plausible way to access these funds. Indeed, things have got so bad, the Railways is likely to lose R25,000 crore on R36,000 crore of budgeted passenger revenues this year. As a result, it overcharges on freight—the passenger-fare-to-freight earnings ratio has fallen from 0.31 in FY01 to 0.25 in FY13 (this ratio is 1.3:1 for China)—and then loses on freight revenues since this makes freight rates among the most expensive in the world. In FY12, when nominal GDP grew 15%, freight traffic grew just 6%. This year may not be much better.

Nor is it just a matter of the money, important as that

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