There seems to be a clear break in the run of good performances that Railway Minister Lalu Prasad had been able to trot out till now. It is only to be expected that a key infrastructure sector like the railways will be hit by the overall economic slowdown, just as they benefited from the rapid growth of the last five years. So if there is a surprise about the railways’ performance in the current financial year, it is that traffic and revenue have done quite well despite the general loss of momentum. The railway minister expects even now to meet his revenue target for the current year, with less than two months to go, attributing his optimism to the revival in freight traffic in the last two months.
What has let the railways down is expenditure. This is set to shoot up by as much as 33 per cent over the previous year, the main culprits being the wage and fuel bills. Implementing the recommendations of the sixth pay commission, which involves paying arrears in the first two years (2008-10), has meant an outgo of Rs 13,600 crore, against a budget provision of no more than Rs 5,000 crore. Next year, when the remaining 60 per cent of the arrears will have to be paid, the outgo will be over Rs 14,000 crore. However, there will be a respite from rising diesel prices. These runaway expenses have tarnished what had become a key measure of the railways’ improving performance — a steady decline in the operating ratio, which measures expenses to revenue. After dropping to 75.9 per cent last year, the operation ratio is set to shoot up to 88.3 per cent this year and rise further to 89.9 per cent next year—not much better than when Mr Prasad took charge five years ago. The net result is that profits are well short of projections.
Meanwhile, the minister has crossed the limits of propriety by using an interim budget to announce a passenger fare cut of 2 per cent, along with the starting of dozens of new trains. These may not be a violation of the letter of the law, but is certainly so in spirit, since everyone knows that elections are about to be called, and that a full-fledged budget will be presented in the summer. The minister has also taken the risky path of choosing not to raise freight rates, and yet projecting a marginal increase in profits—which he hopes to achieve by squeezing spending, and the assumption that the recent upturn in freight traffic will continue, which is optimistic when all forecasts indicate that the economy is continuing to slow.The minister has put the brakes on investment and maintenance expenditure. Plan expenditure next year is projected to stagnate at the current year’s level; the allocation to the depreciation reserve fund, which enables the critical work of track renewal, is also projected to stagnate. The budgetary allocations under detailed heads look even worse. A third less is set to be spent on rolling stock acquisition and passenger amenities; a quarter less on traffic facilities — a critical area which ensures that rising freight volumes do not create bottlenecks. Even computerisation has not been spared — expenditure is set to go down by Rs 7 crore to Rs 220 crore. At a time when government spending is supposed to fuel private sector activity, it is clear that the railway minister is focused on his bottom line. Perhaps one should not complain after all.