Poor Dinesh Trivedi. The relatively saner face of Trinamool Congress is facing flak from his boss Mamata Banerjee for daring to take one tiny step towards initiating reforms in user charges. That is, getting consumers to pay for travel. But beyond their sublime incompetence in running a vital infrastructure and warped incentives that give precedence to political rabble-rousing rather than economic performance, neither the railway minister nor West Bengal's chief minister are relevant to the long-term health of this ailing organisation. Apart from performance anxiety, there is little that Trivedi's first Railway Budget 2012-13 offers. But can we hang the Trivedi-Banerjee duo alone or do we need to take India's political-economy to the gallows as well? I believe, both.
Trivedi, who has been behaving more like a puppet whose strings get pulled from Kolkata rather than a minister in charge of Railways, first. Within minutes of his proposal to raise passenger fares, Mamata sent a missive: no hike, end of discussion. Or recall his hurriedly-backtracked March 10 statement about mid-term polls, following the electoral results in Uttar Pradesh. So deep is his sense of paying obeisance to "my leader", it borders on the obsequious: in his speech he used the word 'Mamata' nine times - thrice in the first minute alone.
But in order to evaluate Trivedi's budget we need to look beyond Mamata or abuse of expressions like 'safety', 'national interest', 'committees' or even the nine poetic homilies he indulged in during his 90-minute speech. We need to capture the health of the Railways using the most important tool - operating ratio (the money needed to earn Rs. 100; higher the ratio, less the surplus and worse the financial health). For 2011-12, this ratio stands at 95. This means, the Railways is perilously close to bankruptcy. For Trivedi to say he will reduce it to 84.9 in just one year is laughable. What's not funny is that the Railways has had to take a R3,000 crore loan from the government - the first time in its 153-year-long history - and reduce its dividend to 5% from 6.5%.
On the performance front, the last memory of any leader successfully attempting a transformation of the creaking rail transport monopoly is Lalu Prasad (2004-05 to 2009-10). Riding a growing economy, he was able to reduce the operating ratio all the way down to 75.9 - the best-ever in three decades across 14 railway ministers - in 2007-08 from 91.0 his predecessor Nitish Kumar had left him two years earlier.
Lalu's clowning around prevented the intelligentsia from taking his achievements seriously but from Prime Minister's Office and Planning Commission to Harvard and World Bank, all lauded his efforts in turning around the Railways, bringing it back from the brink of disaster.
However, following the global slowdown it jumped again and he left Mamata with a ratio of 95.3 in 2009-10. The only response from Mamata, when electoral numbers changed in UPA's second term and she replaced him, was a December 2009 White Paper on Indian Railways that denounced Lalu's work. It claimed that based on "new financial ratios using commercial principles, the best period for Indian Railways financially in the last two decades was not the last five years, but the period 1991-96."
This is the period when CK Jaffer Sharief was the minister. In this time, the operating ratio consistently fell to 82.5 from 92.0. In terms of organisational stability, Sharief has been a better performer than Lalu, whose fall was sudden and unsustained. In his five-year tenure, Sharief may not have hit any record, but should get an award for consistency.
In her earlier two-year stint as (2000 to 2002), Mamata presided over the worst-ever performance of the Railways, when the ratio rose to 98.3. With little more than a cursory political interest in the organisation, Mamata, at a time when the Railways is being seen to be a catalyst to India's growth story, has been leading it nowhere.
Looking beyond specifics, the problem of Indian Railways lies elsewhere. As a nation, we don't like to pay user charges. As a poor country, many don't have that ability. As a democracy, the votes lie beyond the pale of payments. As a result, the political economy gets skewed towards models that appear conflicting to western-educated thinkers. But the same economists who studied 'constraints maximisation' in college need to take the political economy as a challenge rather than merely denounce the political environment.
Lalu did that fairly well. Without increasing fares, for instance, he raised revenues from passenger trains. How? By increasing coaches to every engine, he added passengers on the same route. This reduced the per unit cost of transport and generated more revenues. Every minister begins with the premise that "passenger fares will not be raised". Lalu did that too. But beyond that, it needed a smart bureaucracy to turn the constraints into opportunities. On freight, for instance, he stopped across-the-board increases and turned market-friendly. So, iron ore exporters, who were riding a global commodities boom happily paid more. This has been reversed by the less imaginative Trivedi last week --- before he presented the budget.
The other tool that can catalyse the Railways is public-private partnerships (PPPs). While Lalu introduced the idea, beyond catering, it has all but failed. A cursory look at the limping container business despite opening it up to private businesses speaks volumes. What's needed is not a policy reversal but its expansion. On that front, Trivedi is on the right track --- he wants to use this tool for modernising stations, rail corridors, and turning failed schemes like wagon leasing, sidings and private freight terminals more attractive.
But all these need something very basic --- tracks. And no private entrepreneur is going to invest here. It takes too long to build and even longer to yield any return. With freight corridors being planned and which can change the speed at which goods are transported across India, industry would be willing to pay a premium to ride the lines. There is no politics here. The political part of railways is confined to fares --- and to fares only. Let us not confuse the issue and use it as an excuse to hide ministerial inefficiency that's taking Indian Railways on a train to nowhere.