By  Dilip Kumar Samantray*, Bhubaneswar, February 19, 2016 :  India Railways [IR] is called the life-line of the nation. With 13.34 lakh employees IR is the world’s seventh largest employer. It has over 13 lakh pensioners to serve.  During last 162 years IR has seen many ups and down.

But with global meltdown, IR is at a cross-road. It is in this context, the Rail budget – 2016 to be presented to Parliament on Thursday will be a big pointer to the shape IR will take in time to come. Will the 2016 Rail Budget come up with some path-breaking measures or follow the same pattern that it had been following for past years is the moot question.

The biggest challenge before the IR is that it will have to squarely shoulder the likely burden of Seventh Pay Commission Award on salary hike to the tune of Rs 32,000 crore. All along, the major components of revenue expenses of IR have been salary cost and pension (51%) followed by fuel and energy bill (31%).

Similarly, 67% of the Railway’s earnings come from freight and 27% comes from passenger services. Logically, setting of tariffs at levels which can meet the operating and investment needs of IR is sine qua non to the viability of IR’s business model.

But the ground reality is that railway freight and fare structure suffers from the following dichotomy.

On the one hand, there is low recovery of costs on the passenger segment and on the other, there is a high freight rate. This is evident from the fact that in 1999-2000, the cost per kilometer of passenger service was 35.83 paise while the passenger earnings for the same distance was 22.21 paise, a recovery of only 62% of the cost from passengers.

By 2012-13 the situation has gone from bad to worse as the cost per kilometer went up to 57.76 paise as against the earnings of 28.52 paise. The cost recovery further came down to less than half i.e 49.4%. In the process the estimated losses of Railways in passenger segment have mounted from Rs.6159 crores in 2004-05 to nearly Rs.30,000 crores in the current financial year. This situation is primarily on account of sharp increase in input costs and no commensurate increase in fares over the same period.

At the same time, in freight services the cost recovery was 129% in 1999-2000 and it has gone up to 163.7% by 2012-13. To add further to its woes, it incurs losses on uneconomical rail-lines. Consequently, the Operating Ratio (paise spent to earn a rupee) of Railways is around 90 and there is little surplus left to invest on infrastructure. The policy of cross-subsidisation of passenger transport has led to high demand for passenger services while the necessary infrastructure creation to serve this increasing demand has not been in tandem with the requirement.

On the other hand, enhanced freight rates have not helped in attracting more traffic to the Railways and have, in fact, led to traffic moving to road in certain segments. This has affected the internal generation of resources for investment and has set in motion a vicious circle of low investment, leading to lack of capacity to meet the demand and affecting service quality.

The budgetary support for railway expansion works has declined over the years.  Consequently, expenditures on Railways as percentage of total transport have declined from 56% during 7^th plan (1985-90) to 30% during 11^th plan (2007-12).

Network expansion and modernization has not happened at the requisite pace in Railways leading to an erosion of the share in national freight and passenger traffic.  In the past 25 years, Railways has added a meager 7% to its network while roads have more than doubled during the same period.  As a result, the share of Railways has fallen from 74% in 1951 to 14% by now in passenger sector and from 86% to 36% in freight during the corresponding period.

Historically, there is a mismatch between the growing demands for rail-services vis-a-vis the available rail infrastructure.  During last 64 years while passenger traffic has increased by 1642%, freight loading has gone up by 1344%.  As against that rail network has increased by 23% only. Ironically, unlike in most European and American railways, the rail track in our country is shared between freight and passenger trains.

Rail-projects of a whopping Rs five lakh crore are pending as on date.  Out of those, projects worth of above Rs two lakh crore are of high priority works like doubling, new lines, traffic facilities, signal and telecom works, electrification, etc.  The non-commissioning of these critical works are having a direct bearing on the line capacity of Railways, which in turn are affecting the earnings and optimal utilization of railway assets.

Further, due to constant demand for new rail-lines from different parts of the country, a large number of socially desirable, but economically unviable projects have been sanctioned in the past creating huge throw forward liabilities.

Till recently, Railways have been thinly distributing funds to a plethora of incomplete projects. That has caused considerable time and cost-overrun to railway projects. During the last 30 years, out of 676 number of sanctioned rail projects, only 317 projects could be completed. For example, the Talcher-Sambalpur rail line took more than 15 years (1984 to1999) to get commissioned, besides the cost going up by more than 700% of the originally estimated.

Keeping these stark realities in mind, Railway Minister Suresh Prabhu in his last budget did not announce a single new rail-line project – a clear departure from his predecessors announcing any number of new rail-lines to appease their constituencies, as a matter of annual rituals.

Further, in the 2015 rail-budget, projects have been prioritized and funding assured for all those projects which can be completed, early.  In this process, the rail-projects falling within the geographical jurisdiction of Odisha got a record allotment of over Rs 2500 crore.  The Ministry has since recognized the fact that high investments are the need of the hour for improving the quality of service.

Prabhu has unveiled an ambitious plan of investing Rs 8.5 lakh crore in rail-infrastructure during the next five years (2015-20).  Of this, around 46% will be spent on network expansion and decongestion. About 500-600 km of line doubling and 100 km of gauge conversion will be commissioned every year.

Budgetary support from the union government will account for 30% of the total investments and 29% will be debt and 15% of the requirements will be through Public-Private Partnerships. In that process Railways is borrowing a staggering Rs 1.5 lakh crore from Life Insurance Corporation (LIC), at a competitive rates and terms. Twenty four congested corridors have been identified for expansion and strengthening from the LIC loan money.

The Railways is also raising resources in innovative ways : foreign direct investment [FDI] in new–age locomotives and coaches, long-term low-cost debt from the LIC, leveraging railway land around stations to develop commercial real estate via private sector partners and setting up new corporations for new projects.

IR is able to mobilize FDI for its flag-ship projects like Dedicated Freight Corridor (DFC). The western Freight Corridor will be funded by the Japanese Agency. Similarly the Mughalsarai-Ludhiana section of Eastern DFC will be funded by the World Bank.

Four more corridors, including Kharagpur-Vijayawada (passing through coastal Odisha) will be developed by Railways. Besides expanding the capacities, DFC, being a fully electrified network will reduce the carbon footprint. The release capacity on account of DFCs will make available for the augmentation and acceleration of passenger services, and also decongest major highways.

The IR has announced its plan of running Talgo trains from Spain with a speed of 160 to 200 km per hour on the existing tracks. Similarly, IR is planning to redevelop about 400 railway stations across the country. The cost of developing stations is to be met through real estate development of land around and airspace above stations. To expedite the augmentation of railway capacities 100% private sector investment has been allowed in infrastructure areas of railways. With the help of Japanese funds and technology India’s first 500-km long ‘Bullet-Train’ project, connecting Mumbai to Ahmadabad at a cost of Rs.98,000 crore is coming up.

IR is also emphasizing upon funding rail projects through public private partnerships. Already rail projects worth 16,000 crores have been completed through PPP mode. Few more PPP projects are being executed, including Haridashpur-Paradeep rail line and Angul-Sukinda rail-line in Odisha. Odisha government has made a major equity contribution in the most sought after Angul-Sukinda rail-line and Haridashpur-Paradeep rail line projects, being executed under PPP (Public Private Partnership) mode.

Recently, the Ministry of Railways has come out with a structured PPP policy with five models to attract state governments and private players. Odisha government has taken the lead by signing an MOU with Ministry of Railways to form a mother Special Purpose Vehicle (SPV) to fund the construction rail lines in the back ward areas of the state.

Prabhu has been focusing to make the organization efficient, transparent and customer-friendly. A Central Cell has been set up to monitor different performances parameters from ground level. General Managers and Divisional Managers have been sufficiently empowered. To make railways responsive to customers’ issues the Minster has started a twitter invoking tremendous response. The issue of hygiene has been focused on with schemes like “clean train station”, “on-board housekeeping” and “mechanized cleaning”. In addition, IR has pioneered the deployment of bio-toilets.

However, the IR has some serious challenges on hand to make the plan and programme a reality. In the last couple of years, the land cost in most states has increased manifold. What is more important is the fact that the process of acquisition has become lengthier and stiffer, in the wake of the Land Act-2013. A number of rail projects are suffering due to delay in clearances from forest, wild-life, etc. Many projects have remained non-starter due to law and order problems.

There is a strong case for suitable hikes in passenger fares. But the political compulsion may not allow the Railway Minister to resort for the same in the forthcoming budget. At the same time, the Minister does not have the luxury of getting government subsidies to compensate the loss on passenger services as is given in European countries. Prabhu is likely to focus on innovative means to generate revenue for the cash strapped organization.

The minister may unveil a plan to cut expenses and at the same time increase non-tariff revenue like such as advertising, parcel-leasing, export of railway equipment and commercial exploitation of railway land. Railways are planning to reduce the energy bill by 20%. The emphasis will remain on strengthening the rail network, rather than announcing new projects. Similarly, as the diesel prices have gone down and cross subsidizing passengers is not seen as a good economics, the railway may not change the freight rates.

From Odisha perspective, in view of the economic and industrial importance of the ongoing rail projects in the state there is every possibility that the allotments will further go up in this year rail budget. It will be a matter of great interest to see how the Railway Ministry is going to patronize the projects envisaged under the mother SPV of the state government and Railway Ministry.

At the end, the focus of the nation will be how will Prabhu lift the railways from a state of under investment to a virtual state of adequacy in expansion and growth. Prime Minister Narendra Modi seriously thinks that a robust Railway can greatly contribute to the country’s economy. Hence, the next few years should change the face of IR. Faster trains, modern trains, swanky stations, skilled staff, should be the Railways of tomorrow.

*(The author is Managing Director of Angul Sukinda Railway Ltd. The views are personal)