Prabhu's boldest gamble to pep up the railways

The Rail Budget for 2015-16 by the astute auditor-turned-Railway Minister Suresh Prabhu, has predictably evoked mixed response with media painting it as a visionary document laying out a medium-term perspective plan to put the system back on track. Even as two credible ex-railways ministers – Nitish Kumar and Dinesh Trivedi -- excoriated the Budget as meretricious. They believed the budget to be dangerously built on long-term debt funds. The overemphasis on institutional finance to attract investment through the debt route appears archaic when the state of finance of the arterial mode of transport is far from robust with no investors inclined to invest stakes in such an enterprise. 

No doubt, Prabhu eschewed the cheap options of scoring brownie points by presenting a please-all budget; or by stretching the sparse resources thinly on sloganeering programmes such as opening new routes, sanctioning more trains or ensuring more station halts for super-fast trains. This time around, Prabhu broke away from the  standard practice followed by his predecessors including the two eminent ones who railed against Prabhu’s budget for lacking in credible programme for funding and spending. Trivedi, a former Railway Minister, who has been unfortunately reported to be a fence-sitter for both the Congress in UPA and the BJP in NDA, exasperated as he is now with the domineering didi in the Trinamool Congress, has questioned Prabhu’s bold gamble of relying on institutional finance by way of garnering extra budgetary resources at a time when the operating ratio of 92 per cent (implying less availability of capital investment for infrastructure) in 2014-15 meant no investor would be enthused into investing into such a financially messy system. 

As a refreshingly original reformer in the Railways during the Vajpayee government, Nitish Kumar, too, had questioned the excessive dependence on debt from multilateral, bilateral and private agencies. This strategy, Kumar believed, would not be scalable as the experience of the past has conclusively affirmed. But the fact remains that public investment and budgetary support to the railways have been shrinking drastically over the years. It is hardly a wonder that its share in freight haulage has declined from a dominant level to an insubstantial low. Even as freight revenues account for more than 60 per cent of total railway revenues, most of this amount could not be redeployed because the freight earnings cross-subsidise passenger fares. And the freight rates have been periodically pushed up much to the discomfort of user industries who then switched to other faster modes of transport as compared to the slow speed of the railways.  The ordinary passenger or goods train cannot average more than around 25 kms per hour in the present digital era when the need of the hour is speed.

That is the reason why the present Railway Minister has been emboldened to lay out a Rs8.5 lakh crore investment plan over the next five years through some innovative financing mechanisms, and multiple sources of funding in order to raise daily passenger carrying capacity from the extant 21 million to 30 million, track length by 20 per cent from 1.14 lakh km to 1.38 lakh km and the annual freight carrying capacity from one billion to 1.5 billion tonnes. 

Hence the stress is on roping in public sector undertakings (PSUs), state governments and private players as partners in progress by promising them the requisite regulatory policies and assured returns on investments they make. With huge pots of savings of LIC and Pension funds lying idle in government bonds except in the important segment of housing finance, it is time the railways dipped into these funds so that institutional investors get the value for their money, and the railways the requisite funds to keep the system spick and span in the overall growth of the economy. 

If the accountant in Prabhu has guided him then the path he has laid out has its pitfalls as well as rewards. At the end, let’s remember that profitable outcomes are achieved only by taking risks which are worth taking rather than yielding to continued inertia.  

The author is a freelance journalist based in New Delhi