Reforming the railways

With Lalu Prasad as minister for railways, whatever hope remained for substantial reform of the system had been discounted a year ago.

His penchant for populist gestures of trivial consequence for the viability and efficiency of the system""earthen containers for serving tea""was matched only by the complete absence of major reform initiatives in his first railway Budget presented last year.

His second Budget, for the new financial year, was an improvement in many ways, and the optimists now point to some recent indications that further reform is coming in the railways.

Last week, for instance, in a welcome market-driven response to competition from pipelines, a lowering of freight rates for petrol and other petroleum products was announced.

The earlier rate was estimated to earn the system a gross margin of 140 per cent; the new rate pegs this indicator at 80 per cent, which it is estimated makes the railways price-competitive with alternative modes.

Similarly, the rates on some steel products have been reduced to increase the attractiveness of rail relative to road transport.

Then, earlier this week, the railways announced an increase in reservation charges across the board. The amounts are trivial, ranging from Rs 5 to Rs 10 and, therefore, so is the contribution to revenues.

Also, since much of the financial burden on the system arises from unreserved passenger traffic in the lower classes, the basic problem has not been addressed.

But what this move signals is an acceptance of the inevitability of raising passenger fares/charges so that the system regains financial respectability.

If so, Mr Prasad can counter those who criticise his destructive populism by arguing that reform in small doses and in a low key is what is politically feasible.

The news on the railway infrastructure front is also encouraging. The government has approved the construction of a dedicated freight corridor on the golden quadrilateral (GQ), for which Japan will provide significant and low-cost funding.

Effectively implemented, this will provide an enormous boost to transportation capacity in the economy. Low-cost movements of both goods and people are a critical requirement of an economy as large as India's, but the costs must be genuinely low as opposed to being artificially made so by large subsidies.

Congestion on the GQ is a persistent source of inefficiency and is well on its way to becoming a binding constraint on growth.

The dedicated corridor comes very late in the day, but it is better late than never.

It must be emphasised, though, that these are just good beginnings. The transition to a commercially viable and financially disciplined system, capable of servicing debtors and satisfying investors, will not happen in the current control and management scenario.

Without significant organisational change these measures, positive as they are, will remain drops in the ocean.

This is a sector crying out for change, and politicians need to realise that the railways are too critical a part of the economy to be left untouched by serious systemic reform.