Mr Prasad surprises

The railway budget is full of pleasant surprises. More traffic has been carried than budgeted, and the financial performance is better than expected.

Even more important, the railway minister has outlined a programme of action that could transform the organisation in the coming years and deliver a different quality of service to both passengers and users of the goods service.

Lalu Prasad should be complimented; or perhaps it is his officials who have done the job while he has been busy with Bihar. Whatever the case, this sets the stage well for the Union Budget on Monday.

All the more is the pity, therefore, that Mr Prasad has missed an excellent opportunity to correct the distortions in what the railways charge by way of fares and freight rates (too little on the first, too much on the second).

If anything, he has skewed the position even further against freight, through the subterfuge of re-classifying freight categories while pretending to not have raised rates.

The other negative is that, while the system is showing up serious capacity constraints, the investment programme that has been outlined does not do enough to provide headroom for growth.

More than any numbers, Mr Prasad's Budget speech is surprisingly full of examples of the railways seeking to embrace modernism in terms of management practice, though the inevitable obeisance to populism by way of announcing more passenger services is also there.

The productivity improvements achieved and promised (reducing goods train turnaround time from seven days to five) are dramatic, as is the promise of further financial improvement.

The plan for a management information system and the varied use of computers and networks as both user convenience and management tool suggests a new organisational mindset.

A fairly detailed package to attract more freight has also been spelt out. Such positive surprises are welcome.

Freight earnings, which are the bread and butter of the railways, are likely to go up in the current year by 10 per cent, while originating tonnage is likely to rise by 7.7 per cent.

The latter is slightly above the projected growth rate for the economy as a whole, prompting the minister to claim that the railways have snatched back a small part of the market share they had lost.

Against the 10 per cent rise in revenue, total expenses are set to go up by 7.5 per cent. This is likely to result in a very respectable improvement in the bottom line (net revenue) by 18 per cent.

The additional cash is also being put into funds where it really matters. Appropriations to the depreciation reserve fund, the key vehicle that provides for vital track renewal, and the pension fund will be more than budgeted.

New investment will be up by a modest 5.8 per cent to Rs 15,349 crore, including the amounts passed on through the Special Railway Safety Fund and Central Road Fund.

If you account for inflation, the real growth in investment will be negligible. This is largely because the central government has been somewhat miserly with its budgetary assistance.

Consequently, the railways are projecting a hefty rise in internally funded investment by as much as 26.5 per cent to Rs 4718 crore. That will depend on traffic buoyancy continuing.

Since the economy is in fine shape, there is no reason to expect otherwise.