Dr Bharat Jhunjhunwala
Railway Minister Suresh Prabhu must be congratulated for taking the Indian Railways on a new journey. The Minster has focused on raising non-tariff revenues from advertising instead of raising passenger fares as was being done till now. The Railways has access to a captive audience waiting at the railway stations. LED screens can be installed to beam advertisements to them. Large numbers of passengers sit idle in the rail coaches. Indoors of the coaches can be painted to make advertisements and generate revenues. Large numbers are visiting the IRCTC portal. The Railways has already made an agreement with Amazon.com to redirect the visitors to its portal. One assumes the Amazon is paying a hefty fee to the Railways Already for this service. The share of non-tariff revenues in railway networks of some other countries is as high as 30 percent. The Railway Minister proposes to increase the share of non-tariff revenues from present five percent to much higher from such non-tariff activities. This is a welcome change in direction.
The Minister also proposes to use new technologies to reduce the costs of operation. E-procurements are being initiated. This will break the stranglehold of established mafias and bring down the costs. Third Party audit of various railway works will expose the crooked workers and enable the efficient to be promoted. E-recruitment will enable the railways to recruit the best candidates without compromising on the quality of the intake. These are welcome steps that will help improve efficiency and restore financial health of the Railways.
Question is whether these savings will be adequate to provide the large amounts that require to be invested to upgrade the system. The rate of growth of revenues of the Railways is faltering. The increase in gross revenues during the last five years was between 10 and 18 percent. It has fallen to a meager 4.6 percent in 2015-16. The reason appears to be the widespread slowdown in the economy. Passengers have less money to travel. Businesses have fewer goods to transport. This problem is not the making of the Railways but it is affected nevertheless. The savings from introduction of e-procurements and other technological advancements will hardly be able to make up for this slide in the revenues of the Railways.
There is little hope of getting support from the Finance Ministry. Reportedly the budgetary support to the Railways for 2015-16 was reduced from the promised Rs 40k crores to Rs 2k crores. The Prime Minister has promised to increase the support for 2016-17 from the promised 40k crores for the previous year to Rs 60k crores. But I have doubt that this promise will materialize given the difficult situation being faced by the Finance Ministry due to shortfall of projected revenue receipts. The Minister has expressed happiness at 124 MPs have provided funds from MPLADS. Some corporate have promised to provide funds from their Community Social Responsibility budgets. But these are like a drop in the ocean.
The Minister has sought to tap funds from the private sector through Public-Private Partnerships. The difficulty here is that private investors have a keen eye. They assess the financial viability of the project before putting their money into it. The fact that virtually no progress has been made on attracting private capital indicates that the investors do not find the Railways bankable. This same hurdle will make it difficult for the Railways to borrow from Multilateral Financial Institutions like the New Development Bank. These funds will come only if a project is financially viable.
The capital expenditures made by the Railways have increased from Rs 57k crores in 2014-15 to Rs 94k crores in 2015-16. It appears this increase has been funded by a loan of Rs 1.5 lac crore rupees provided by the Life Insurance Corporation. This is good for the Railways but hides a bigger problem. The hard earned money invested by the Policy Holders of LIC is being squandered at the call of the PMO. The Policy Holders of LIC are being taken for a ride. LIC is investing the money of the Policy Holders in projects that are not found viable by private investors. This is cheating. There is a limit to how far this will go. The bottom line is that the Railways will not find it easy to raise external funds. The only solution is for the Minister to focus on increasing internal accruals. A mission to cut expenditures and improve efficiency is required.
The Minister has been entirely silent on the widespread overstaffing, inefficiency and corruption that is endemic to the Railways. I remember seeing a report from a vigilance organization a couple of years ago saying that the maximum numbers of complaints of corruption were lodged against the Railway Ministry. Every passenger knows that the conductors can always provide a berth at a certain price. Any numbers of passengers will vouch of being overcharged by the coolies. The Minister has remained silent on this menace that is bleeding the railways from the inside. Rather, he had agreed to provide higher emoluments to these corrupt employees by making increases at par with those recommended by the Seventh Pay Commission.
There was a need to rethink this. The employees of the State Bank of India make a separate negotiation and are not bound by the agreements made by the Unions of other Public Sector Banks. It was necessary to similarly delink the Railways from the recommendations of the Seventh Pay Commission. The amounts earned by the employees of the Railways from corruption can, at least, be collectively deducted from their salaries.
The Minister has sought to cover up the tyranny of the railway workmen. He has spoken of provision of “soft” training to the coolies. But this should be combined with a “hard” system of surveillance. One-sided pampering of the railway employees will ultimately land the Minister in trouble. The savings made will be used to provide increased salaries to these corrupt employees. In the end the consumer will get little. Only a few unreserved high speed trains will actually be run because the Railways will not have any money left to run these trains.
The Minister will be well advised to focus on improving efficiency of the workmen. Personally, I am in favour of increasing fares to raise the monies for investment. Previous Governments have raised fares to hide the inefficiency of the system. The NDA Government must take the people into confidence and increase fares for making investments to the extent absolutely necessary. Upgrading of the Railways must not wait.
(The author was formerly Professor of Economics at IIM Bengaluru)
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