Railway Budget: A turnaround phenomenon

Deepak Nagpal Indian Railways – the name is enough, an advertisement goes about a reliable product. And the facts speak for themselves:

Indian Railways (IR) is known as the largest and busiest rail network in Asia

It is also believed to be the world`s largest railway system under a single management

IR runs over 11,000 trains everyday

Out of these, nearly 7,000 are passenger trains

It transports more than 1.8 crore passengers and over 20 lakh tonnes of freight everyday

The Railway employs more than 14 lakh people

IR has nearly 7,000 stations over a total route length of more than 63,327 kilometres

Its revenue was more than Rs 70,000 crores in 2008

More than 70% of the IR’s revenues and most of its profits come from the freight sector

Looking at these humungous figures, no wonder Indian Railways is described as the `Lifeline of the Nation`. Railways in India touch the lives of almost everyone – from a poor to a rich man. Be it by way of travelling or the goods that are brought to our cities and towns by the Railways, our lives are intertwined with this ‘Lifeline’. So any decision that is taken with regard to the Railways is bound to affect the masses, not to mention the over 14 lakh people working for this ‘giant’. Railways was rarely a profitable venture until Lalu Prasad Yadav took over as the Union Railway Minister in 2004, when the Congress-led UPA government came to power. His tenure has seen a turnaround of the department whose annual balance sheet is so big that it needs to be presented by way of a separate budget in Parliament. Till the start of the 21st century, Railways in India was seen as a social service institution which catered to the masses. No matter how much losses it was suffering, passenger fares, especially of the general and sleeper classes, were maintained at minimal level so as not to ‘burden’ the masses. Even when there was a pressing need to hike fares, passenger tickets were largely spared the additional burden and the increase was affected in freight charges. The profits that were made from the freight operations were used to cross-subsidise the passenger sector, which was making losses. This policy of the Railways hurt its revenue generation by keeping away those who wanted to use the service for transporting goods on a large scale. Around 2002, the Railways even found it impossible to pay dividends to the Central government for the capital invested by it. The period following it marked a shift in the way Railways functioned. The then Railway Minister, Nitish Kumar of the NDA government, tried to implement a change in the way IR was seen – not just as a social service institution but also as a commercially-viable venture. His ministry, near the end of its tenure, introduced a slew of measures to maximise the operational efficiency of the Railways. These measures were continued and augmented under Lalu’s leadership and when they started yielding results, Indian Railways’ turnaround story was scripted, became a hit and was lapped up by MBA institutes across the world. Lalu, for his part, proved to be a good manager while being populist and made the Railways earn profit and cater to the masses as well. During his tenure, the passenger fares, especially of the General and Sleeper classes, have not just remained steady but have also been brought down. For example, in the 2008-09 budget, Lalu brought down passenger fares for all classes and also reduced freight rates on gasoline and diesel. The Railways also brought in measures so as to boost the earnings from freight. The measures included building a new Dedicated Freight Corridor spanning about 2,762 route km on two corridors, and launching a privatization scheme aimed at enhancing the performance of freight trains, among others. As a result of these measures, the Railways have started generating positive cash flows and have even been paying dividends to the government. Its operating ratio too has improved significantly over the past five years. Populism in Lalu’s Railway Budget over the years has not just been restricted to a cut in passenger fares. Under his tenure, the number of trains, including the ‘luxurious’ Rajdhani Express and Shatabdi Express, have also increased steadily. He has further revolutionised train ravel for the lower strata by introducing Garib Raths (Poor Man’s Chariots) — the first Indian train to be fully air-conditioned in all classes. Last year, the Railway Minister also unveiled plans to set up a network of 20,000 kilometres of high-speed rail corridors across the country where trains will run anything between 300 to 350 kilometres per hour. "Bowing to the hopes and expectations of millions of people, I have decided to reduce passenger fares and freight rates this year," Lalu said in his 2008-09 budget speech, something which clearly highlighted how the populist sentiment is catered to by ministers in their Railway Budgets. But the former Bihar Chief Minister has been wise enough by not just pleasing the passengers, but also freight service users and thereby keeping the Railways a viable venture. By cutting fares of the A/C class, Lalu has also been trying to eat into the passenger share of budget (low cost) airlines. As Lalu once said at a conclave, “…. and we make policies keeping common man in the centre point. …. and we will have to do this. The resources of the community should not be restricted in few hands… it should be distributed. We have to open our hands. We must see, no matter which department we are in, which corporate sector we are in unless we distribute keeping common man in mind our policy will be useless.” One may choose to see the above remark as aimed at social change, or a populist one to win more votes in elections. But if, at the end of the day, the common man benefits nothing else matters. Lalu’s managerial skills have worked because he thinks like a businessman who also cares for the society, by making it benefit from the changes being brought in. This is clearly evident in his following remarks. “Till yesterday mobile phones were so expensive that only few people used it but as the policy changed you can see even a rickshaw puller and labourers using it at a very low price. And you see when the consumer base increases even the corporate houses make more profit. They don’t run into a loss.” “Yes we also make some policies which do not give us any return, such as ‘mid day meal’. But if the children of our country turn literate they become our asset… so it is not a useless expense.” But whatever the minister may say to justify his announcements, populist overtones have always been visible in his budget. For example, cutting fares by a rupee in Mumbai suburban railway where passenger fares are already very less, stopping the production of wooden seats and replacing them with cushioned ones in General compartments, regular concessions to students, women and senior citizens etc. In fact, Lalu last year offered 30% concession in fares to male senior citizens, and an additional 20% for their female counterparts. At the same time plans to start budget hotels on unused Railway land, providing land to farmers on lease and create cold storage near the stations with packaging facility for them to store their produce etc have created fresh source for capital inflows. He even banned sale of cold drinks like Pepsi and Coca Cola in trains, replacing them with milk, buttermilk etc served in ‘kulhars’ (handmade mud pots) instead of plastic cups to encourage local artisans. It is another matter these cold drinks and plastic cups are back again. His ministry has also announced plans to introduce onboard entertainment and fast-food facilities, vending machines and ATM machines at the stations. In a measure to cheer up over 17 lakh porters working in various railway stations across the nation, Lalu, in his last year’s budget, announced appointment of porters as gang men and on other under Group D posts.