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The railways as fare game

Revenue is not keeping pace with expenses thanks to debilitating political meddling.

india Updated: Mar 26, 2012 23:15 IST

A sober analysis of how the Indian Railways needs to morph in a competitive environment finds occasional mention in annual Budgets. Every other rupee the railways earns comes from carting coal, iron or cement and the country’s infrastructure deficit should keep the railways in business provided it can handle it.

The Chinese lug twice as many wagons on a rail network roughly our size to carry nearly four times our freight. Around a fifth of India’s tracks are still metre gauge, rendering them unfit to carry cargo. Capacity building is vital if the Indian Railways is serious about reclaiming market share lost to highways and pipelines. And capacity on this scale does not derive from incremental gains in loading wagons and turning them around faster.

A shared network for goods and people slows both down; and the railways is on the right track when seeking private investment in dedicated freight corridors, rolling stock, last-mile connectivity and even in running trains. There is also merit in farming out heavily subsidised mass transit systems in cities to their local governments and corporatising large chunks of the network.

A task force set up to look into the modernisation of the railways over five years estimates the bill will add up to R839,000 crore. The railways and the government could cough up half this amount, the rest borrowed or invested by private players. The task force has come up with recommendations that question how the railways is managed; the businesses it should and should not be in; the scope for private partnerships; the state of its tracks, rolling stock, signalling system, accounting processes, and its human resources practices. Each is eminently reasonable, and would be lapped up by any business firm that expects to run as a going concern. But, critically, the railways will continue to operate as a political fief, putting paid to the most well-intentioned advice.

The reality is with expenses eating 95 paise of every rupee the railways earns, there is little elbow room for building infrastructure. A target of bringing this ratio down to 75% in five years looks a distant dream after the controversy surrounding the announcement of the first fare hike in a decade. The lion’s share of extra money the railways expects to earn will come from cargo rates raised throughout the year.

Seasonal freight pricing has become a preferred tool to increase railway revenue and capacity usage while keeping up appearances on cross-subsidisation of passenger fares. As operational costs mount, the pressure to raise fares can only keep pace. Playing politics with fares is a dangerous game. But it seems to be the only one going around.