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Managing the Railways: Canny business, uncanny populism

comment Updated: Jun 25, 2014 21:53 IST
Hindustan Times
Indian Railways

The tendency to give fiscal rectitude a pause runs strong in India, especially for a new government. The Indian Railways, over the past few years, have had to deal with precarious finances and political one-upmanship. The Narendra Modi-led government first announced a 14.2% across-the-board hike in train fares. The howls of protest that followed, however, forced a roll-back on second-class suburban travel up to 80 km. Admittedly, the new government has not inherited a winning hand. The expenses are set to shoot up by around `17,000 crore while earnings are expected to just about keep pace.

According to the interim budget presented in February, the railways’ total expenses are projected to grow at 13.2% this year, while earnings would expand at 14.4%. The growth in earnings is predicated on the fare hikes that were factored in the interim budget. The railways’ operating ratio — the rupees spent to earn every extra `100 — is now at 89.8 in 2014-15 after deteriorating to 95 in 2011-12. Eventually, the top line could have a significant upside: The railways are targeting nearly 13% growth in freight earnings and with the freedom to change haulage rates throughout the year, it might pull a few rabbits out of the hat if the economy picks up steam.

The partial rollback also points to the inherent tension between populism and reform that the government will have to deal with as there are strong constituencies in the establishment that back both positions. Soaring food prices have pushed up the inflation rate, compounding worries for the new government weeks before it presents the budget. The NDA rode to a landslide victory in the polls, but faces the challenge to deliver quickly on its electoral promises to cool inflation and revive the economy. The government needs to spin jobs for tens of millions of restive hopefuls while the elbow room in the treasury remains limited in the backdrop of high inflation and borrowing rates. For a behemoth like the Indian Railways, this would imply that the government should no longer baulk at taking the next logical leap of corporatising large chunks of the network. And also not remain content in seeking joint ventures at the fringes. Plans to allow FDI in high-speed trains and rail cargo passageways, even for those that are currently operated through public-private-partnership programmes, are long overdue, given the capital required to expand and modernise the network. The government, thus, will have to display dexterity to accomplish a marriage of canny entrepreneurship with uncanny populism.