Prime Minister Manmohan Singh’s urgency on setting the economy right is showing up in his Cabinet reshuffle. On taking over as railway minister, Pawan Kumar Bansal immediately declared his intention to raise passenger fares, which have been in deep freeze for the past 10 years as first Lalu Prasad and then Mamata Banerjee used the Indian Railways as their fief. Over this period, the railways progressively increased their expenditure from R78.7 in 2006-07 to R95 in 2011-12 for every R100 it earned. Freight income thus kept on subsidising passengers. Dinesh Trivedi, the Trinamool Congress railway minister who proposed a fare hike earlier this year, lost his job for attempting to bring down operating expenditure as a ratio of income to 74% by 2017-18. With the ministry now returning to the Congress, Mr Bansal can take up Mr Trivedi’s unfinished agenda. The railways must generate surplus on their R100,000 crore annual income to upgrade their networks in order to carry more goods and people. Mr Bansal has rightly pointed out people are ready to pay for better services.
Railway finances are not the only ones being turned around by the UPA. Finance minister P Chidambaram’s announcement of medium-term fiscal correction milestones a day before the Reserve Bank of India (RBI) reviewed its credit policy may have had some impact on the central bank’s outlook. Although RBI governor Duvvuri Subbarao did not lower the short-term policy rate on Tuesday, he said interest rates could start to decline sometime after January 2013. The government is keen on a cheap credit environment to push investments in the economy. Mr Chidambaram has, therefore, committed to reducing the excess of government spending over revenue this year to 5.3% of the gross domestic product and cutting it in stages to 3% by 2016-17. The railway and general budgets next February will have to flesh out the public statements of the respective ministers. This will not be easy in an election year, yet Mr Chidam-baram is thinking out of the box on subsidies, infrastructure and tax reforms.
Investors have taken note of the government’s stance, but as Mr Subbarao indicates, the growth and inflation numbers are drawing greater scrutiny. The central bank has lowered its estimate of GDP growth in 2012-13 to 5.8% from 6.5% and expects wholesale inflation to be 7.5% in March 2013, up from its earlier projection of 7%. Reforms will have to work their way through the economy before it recovers.