Government drawing up plans to make Indian Railways financially viable

The government is readying a blueprint to rescue the railways from long years of rampant populism by successive ministers, lining up measures to push stalled investments and increase revenues.

A senior official told ET the finance and railways ministries and Planning Commission are working on a plan that could include measures such as benchmarking fares to inflation, public-private partnerships to bring in investments and monetisation of land to generate funds. A freight network on the lines of the Golden Quadrilateral is also being considered, said the official, who did not wish to be named.

“Turning around railways is next on the agenda,” the official said, without giving a deadline. “A plan will be drawn up soon to re-energise the organisation to put it back on track.”

Talks have begun to help revive the government-run entity that has seen its operating ratio, the money spent on ordinary expenses to earn every Rs 100, rise from Rs 91 in 2004-05 to Rs 95 in 2011-12.

This means, after meeting interest costs, the railways does not have enough surplus to plough back into investments. On a turnover of Rs 1.03 lakh crore in 2011-12, the surplus was just Rs 1,500 crore, leaving it with about Rs 9,100 crore of internal resources to fund its plan in the year.

“The immediate priority is to make the organisation financially viable and make it efficient enough to enable it to attract private sector investments,” said another senior government official.

The blueprint could include creation of an independent rail regulatory authority to fix tariffs, a railway modernisation fund and setting up two boards, one for operations and another for governance, with independent directors. One option is to link fares to inflation, the official said, adding that 60% of increase in the wholesale price index could be passed on to passengers, for example.

“There are a number of prescriptions available to turn around the organisation, including reports by Rakesh Mohan, Sam Pitroda and, recently, Deepak Parekh…The plan would draw from these reports,” said the official.

An expert group set up under Pitroda had in its report earlier this year said the railways needs Rs 8.39 lakh crore of investments in the next five years, pointing to the large cost to the country from “a severe and chronic under-investment in railway infrastructure”.

A beginning has been made in the form of implementing service tax that had been put on hold to appease Trinamool Congress, which held the railways portfolio and was the Congress’ biggest partner in the ruling coalition before it parted ways over the recent push to reforms, including the nod to foreign direct investment in multi-brand retail.

Passenger fares have not risen since 2004, when the Congress-led UPAfirst came to power and offered the portfolio to its alliance partners until recently, when CP Joshi took over. In fact, Dinesh Trivedi of Trinamool Congress had to resign after he raised fares against the wishes of his party chief Mamata Banerjee.

Freight carriage has, however, become more expensive than warranted, causing the railways to lose market share to road transport. The public-private partnership initiatives launched by the railways are yet to attract private sector investments. Critical areas of IT and safety infrastructure in the railways have not seen funds inflow either.

Experts paint a grim picture.

“It’s time to wake up and revamp the administrative, governance and management functioning,” said Vinayak Chatterjee, chairman, Feedback Infra.

Indian Railways has the world’s third-largest rail network and transports 2.65 million tonnes of freight traffic and 23 million passengers every day.

Published in: on October 13, 2012 at 4:59 pm  Leave a Comment  
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