Economic Highlight

New Delhi, 19 September, 2016 

Railways Fare Hike

UNNECESSARY, LOSSES IMAGINARY

By Shivaji Sarkar

Should we really raise railway fares on any pretext? At times it may be necessary. But raising fare and freight constantly, termed as “dynamic fare or freight” should normally be an anathema.

Other questions which come to mind are: Are the railways really in losses? Are they really giving subsidies? Or is it bad mathematics emanating from improper budgeting system? The latter seems to be closer to reality. Some years ago the railways came out with a heavily “surplus” budget, had paid a huge sum in forex to a US university to project the then Railways Minister Lalu Prasad Yadav as a wizard. It turned out that the Railways had fudged the accounts to create an “unusual surplus”.

Then are the railways in losses? Possibly not. The answer to this is given by the Railways themselves in different ways. Through different budgets, it creates a syndrome of having poor operating ratio. But that also is questionable. One fact emerges. The railways are not aware what their accounts are. Except possibly accrual of fares and freight, they are not accounting the expenses properly. The estimates of fare per km and operating expenses are more in the realm of imagination.

So surge pricing introduced by Railways in 242 Rajdhani/Shatabdi type trains is apparently utopian. It may earn them some extra sum but it has also the potential to lose the traffic to competitors – roads and the air.

Obviously, it’s a bureaucratic decision. But it has a heavy political cost that the ruling combine may have to bear. It leads to make the Government unpopular particularly at a time when elections are due in some of the poorest States, including Uttar Pradesh. For a few bucks to be earned or maybe not, political parties may have to pay a heavy price. This will, however, not improve either the performance or functioning of the giant monolith.

For the past over a decade, the Railways have come to support their inefficiency stating that they are not running a service. “It is a business”. If it is a business, the Railways do not know how to manage it. They come out with euphoric statements to justify inefficient functioning. One instance would suffice. A train which has now been renamed Anand Vihar-Kolkata express takes 40 hours to complete its journey of 1400 km.  Earlier, as Janata or Delhi Express, it used to complete the journey in 30 to 36 hours. It has the same fare as any other express train. The train despite its slow speed in reality is running in profit though travellers suffer a lot. There are many such trains across different zones.

Nowhere in the world is railway a business. Railway needs to be viewed as a catalyst. Road or river itself cannot be by itself a business. These are catalyst to move forward the economy. They have the responsibility, particularly the Railways, to make Indian economy move at a higher growth rate – even more than the official target. It can peg it for 10 per cent for the next decade.

The Railways should be seen like a social service. All the same, it has to run efficiently and create the competitive atmosphere. It cannot allow people to move to other modes. But if one has a choice between AC travel in Kolkata express type train and air, people would prefer the air for obvious reasons. In many cases, air travel is cheaper and faster. The railways unfortunately run on a bogey of social service, which in most cases it is not doing.

NITI Ayog‘s member Economist Bibek Debroy has come out with a unique report. He says Indian Railways overstates its losses from “social obligations” by Rs 6,000 crore every years – a huge amount. It means over the past decade alone it has overestimated its “losses” to Rs 60,000 crore – an amount equal to various projects that were announced in budgets. Of these, reportedly only could some come up.

This is a testimony how the railways are befooling the people of this country and misguiding the political leadership. Debroy states: “Analysis shows that 20 per cent more losses in sleeper and non-AC are due to railways’ cost structure and not lower tariffs”. Simply translated it means the railways have been the most dishonest organisation. The report indicates that the way railways computes its input costs is not reflective of the actual cost of per unit of service offered.

Inefficiency, the report states, in cost structure also significantly contributes to the “losses” in passenger services and hence tariff  hike cannot be the only mechanism to address such social costs. Railways, the report observes, stretches input costs to a point that it makes the “under-recovery” due to “low” tariffs look larger that they may actually be. Debroy report states that its pricing of AC services is higher than equivalent AC bus service and tariff hike cannot be the principle to address such “losses”.

It also needs to be understood that so-called “subsidies” are not paid by the exchequer or budgetary support. It is stated to be done through a cross-subsidy of freight to passenger. Indian railway freight is one of the highest only because of this cross subsidisation. As a result the poor people of the country have to bear the brunt. It is an indirect taxation on the poor as essential commodities moved by railways and become expensive. This also makes India's export products become costlier and uncompetitive in the world market.

In the early 1950s, Railways were bigger organisation compared to Chinese railway, now Chinese have surpassed. Indian railway used to carry 80 percent of freight and only 20 percent used to go by road, now it is just the opposite. It has happened because both Central and State governments have literally spent, invested trillions of rupees for development of road. However, they have not spent a penny on Railways.

So the concept has to change. Railways have to run on lower fare and freight so that the economy can boom. There has to be a government strategy for investing in railways and in turn the accounting system has to be realistic, transparent and not opaque as Debroy report suggests.

All other ministries get outright grants and the Railway earns every penny it spends. This has to change. The last 25 years approach of treating it as a commercial entity has to be replaced. It has to be made, competitive and viable to give the nation’s economy the real surge. ---INFA

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