governance, political economy, institutional development and economic regulation

train-crowd (1)

(photo credit: Indianexpress.com)

As expected Suresh Prabhu, the likable, very professional and intensely committed Railway Minister presented a Rail Budget yesterday, which is not only fiscally responsible; internally consistent; aligned with the medium terms needs of the economy but which also pushes all the right buttons.

For the middle class the buttons pushed are availability of disposable linen in trains, on payment, for the squeamish- a first; entertainment on board to while away boredom; Wi-Fi at stations; a choice of meals; an assured maximum waiting time of five minutes whilst purchasing a ticket – again a first. Most important is there is no increase in the price of “upper class” tickets, which no one was expected, given the gaping hole in the financials of passenger traffic.

For the environmentally conscious citizen, Minister Prabhu flags that investing in rail reduces transport of goods and people by road, thereby saving up to 90% of energy and 85% of the carbon emissions as compared to road transport. A clear plus for the security of energy imports dependent India and a plus for the global climate.

Second, dual fuel engines are planned which will run on diesel plus the significantly less polluting Compressed Natural Gas, which compulsorily fuels all commercial road traffic in Delhi thanks to a Supreme Court order a decade ago and is why Delhi citizens are not choking to death in stand-still traffic.

Third, select railway stations will switch to green solar power, generated on site, using the ample land available with government.

For the poor, he has held the lower class ticket fares constant despite a net loss on passenger traffic of Rs 26000 crores ($ 4.2 billion). He adds that he is likely to be helped somewhat by weak oil prices which may reduce the loss by 20%.

Revenues from passenger traffic contribute only around 33% of total revenues but passenger trains get priority in congested routes. Of the passenger revenue the “lower class” subsidized fare contributes only around 70% even though around 85% of passenger miles are in this class. These rates are crying for upward revision.

Sadly, he has hiked the rates for goods transport by around 10%, in line with the long term trend, in which freight of goods and upper class passenger fares are taxed to cross subsidise passenger fares for the poor.

But there is hope. Unlike all his august predecessors he has resisted the temptation of announcing new trains and thus frittering away the meagre public funds (Rs 40,000 crores – $ 6.6 billion) that Indian Rail (IR) gets from the budget.

Sensibly, he intends to invest in around 50% of pre-identified segments of the congested routes to remove blockages,  which slow down premier passenger trains- technically capable of running at 130 km per hour to a mere 70 and freight trains- which can run at 75 km per hour to a mere 25 km per hour.

Decongesting such sections will increase the speed of transport, improve turnaround time of rolling stock and reduce the delivery time at destination of both goods and passengers. Once realized, this by itself will result in financial rewards for IR from improved efficiency. Sadly these intended benefits are either not assessed or not shared with the public.

But it is sad that India still wastes both executive effort and scarce parliamentary time on issues which are squarely within the corporate ambit. There is really no reason why IR should not be a government corporate just like Oil and Natural Gas Corporation (ONGC) the oil behemoth or the National Thermal Power Corporation (NTPC), India flagship power Generation Company.

India’s stock market is booming and capital values are several times the book value of “capital employed” in the these corporations based on future expectations of their profits.

Meanwhile IR, a monopoly in the rail transport segment, with annual revenues of Rs 183, 828 crores ($ 30 billion) struggles to charge cost reflective rates; needs to mind its Ps and Qs because its budget is debated in Parliament, where the 790 honourable members can each be a stumbling block to reform and rationalization and is strapped for capital to invest.

If Indian Railways were a government corporation with a Suresh Prabhu clone as its CEO, it would be the second largest Indian company by assets size, after State bank of India (SBI); the fifth largest Indian company by profits after ONGC, the Mukesh Ambani led Reliance Industries (RIL), SBI and TATA motors and the seventh largest by revenues after Indian Oil Corporation, RIL, Bharat Petroleum, Hindustan Petroleum, SBI and TATA motors.

Ofcourse if it had been a government corporation it would not have had to suffer the political interference which has crippled it since the last “business like” minister it had in the late Madhavrao Scindia of the Congress more than  two decades ago. It is time all the Scindia descendants alligned with the right side of reform again.

The best part of Suresh Prabhu’s Rail budget is that it is “timid” in its ambition. It does not promise the moon and instead bats for “incremental improvements” which aligns well with the glacial pace of reform in India. It is realistic in its assessment of political economy compulsions and yet firm on not “giving in” to the long prevalent culture of “pork” in railway budget allocations.

Small is still beautiful and the Rail budget does well to recognize it. It is the small changes which have a big bang for the buck. Problem solving and unplugging bottled up efficiency essentially involves looking for cost effective solutions. The railway budget assiduously finds them all. The only exception is the commitment to green solar energy which, despite the hype, remains a hugely expensive option for grid connected electricity generation in a poor country like India.

If PM Modi’s “invisible hand” was behind the Rail Budget, we hope to see more of the same, strengthening FM Jaitley’s resolve on February 28, whilst presenting the nation’s Budget for FY 2016, to be efficient without being excessive; effective without being cruel and carefully allocating public funds where the maximum private sector jobs can be created; the poor most benefited and the common tax-payers wallet swelled.

The Rail Budget was a good beginning. Lets hope for a  happy ending tomorrow to the budget mania.

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