Indian Railways on the right track as of now
The railway budget is high on intent. It is now to time to get ambitious with implementationeditorials Updated: Feb 26, 2016 01:18 IST
Annual financial plans of large corporations are usually seen through two broad prisms: intent and delivery. To that extent, it is refreshing that railway minister Suresh Prabhu did not deviate from the principle of making the state-run behemoth function like a business organisation. For long, the Indian Railways has been caught in a vicious cycle of underinvestment and financial underperformance. Challenges have included managing precarious finances and navigating political minefields. Invariably, the biggest challenge staring the state-owned behemoth in the face is how to mobilise resources to fund capital expansion and modernisation.
The Indian Railways’ primary sources of earnings are passenger fares and freight tariffs, which constitute about 26.1% and 65.6%, respectively, of total earnings; other incomes on account of peripheral activities are marginal in comparison. Anywhere in the world, railway operations are profitable largely because 30-40% of the revenue comes from non-railway operations; in India, this figure is not even 1-2%. Reform can happen only when there is a system that optimises operations and customers provide an opportunity with their eyeballs and footfalls. If we tap our customers fully, we can even exceed the global average of 30-40% for non-railway activities. Mr Prabhu is right about the need to monetise the strength of IRCTC (Indian Railway Catering and Tourism Corporation, which does online bookings) as an example of leveraging non-core strengths. It can be the country’s largest e-commerce player, with 20 million registered users, 300,000 ticket sales a day and annual sales of Rs 17,000 crore. Likewise, plans to monetise land by redeveloping railway stations are an illustration of how land and air space can yield money without selling assets.
Setting tariffs at levels that can meet the operating and investment needs of the Indian Railways is sine qua non. There have been several attempts to rope in private investment to raise efficiency in building rail lines, private container train operations and acquiring rolling stock. While these initiatives have evoked a positive response, the full potential has not been tapped. The railway minister has announced a plan to set up a watchdog. A regulator can address the concerns of the investing community, besides help to correct the historical distortion between freight and passenger pricing. Mr Prabhu’s second budget is high on intent. It is now to time to get ambitious with its implementation.