Getting back on track

As he gets down to the preparation of his first full-year Budget for the railways, Lalu Prasad faces a number of immediate and serious challenges.

His last encounter in Parliament, in which he faced the wrath of the Opposition for failing to appear the day after the latest fatal accident, is perhaps symbolic of his fundamental dilemmas.

The pressure, and temptation, to commit railway resources to all manner of schemes""new lines, new zones, new jobs""that yield some political mileage in the short term but undermine the organisation's finances and its ability to spend on even basic maintenance, has been the main problem facing the ministry for the last several years.

Minister after minister has succumbed to this temptation, pushing the organisation to the point where a major accident every few months has become a statistical certainty.

If Mr Prasad is at all concerned about leaving an enduring legacy for one of the most vital sectors of the economy, he must convincingly demonstrate that he is willing to get back on track.

He does, of course, have a blueprint to work from. Three years ago, the Expert Group on Railways submitted a reform strategy to the then railway minister, Nitish Kumar.

This included a strategic reorganisation, moving from the ministerial to the corporate form of governance, recasting of accounts in line with generally accepted accounting practices, tariff re-balancing between and within freight and passenger classes in line with costs and demand conditions, and the setting up of a rail tariff authority to insulate this process from the compulsions of politics.

All these, and perhaps more, are necessary if the system is to have any hopes of raising the substantial resources it needs to decongest, upgrade and maintain.

The recommendations did not underplay the social role of the railways; all they said was that the commercial operations and social obligations have to be distinguished and the latter could be funded by explicit government transfers.

Although the railway organisation formally rejected the recommendations, Mr Kumar did introduce some positive changes in his Budget of 2003. He lowered freight rates for commodities and the difference between the top and bottom fares in the passenger segments.

Rajdhani upper class fares, in particular, came down substantially, which at least kept them in line with the very aggressive discounting strategies being pursued by the airlines.

He also set up the Rashtriya Rail Vikas Nigam, a corporate entity with a view to attracting private money into projects for upgrading capacity along the trunk routes that constitute the traffic-choked golden quadrilateral.

As promising as these initiatives were, their impact on operating margins and investment resources is yet to be felt.

The true test of commitment to reforms is going to be the raising of lower-class passenger fares, in which the current level of cross-subsidies is the biggest drain on railway finances. Mr Prasad needs to push harder in the direction than Mr Kumar was willing to do. Whether he will do so is of course another matter.