Budget: High Public Investment in Railways Is Not Enough; They Must Be Run Like a Commercial Enterprise

When the Finance Minister presents the railway budget as part of the general budget on 23 July, she may likely increase its capital expenditure beyond the level in the interim budget to make up for limp private investment in the economy, and to maintain a higher level of GDP growth than the 7.2 percent rate that the Reserve Bank of India has projected for this year. But despite dollops of government investment over the past five years, why are the Railways not profitable? Are they aggressively chasing traffic, both goods and passenger, as a commercial enterprise should or are they content with meeting easy, incremental targets?

In the interim budget, the central government allocated Rs 252,000 crore for capital expenditure of the Railways. This was nearly a quarter of its total investment.  Another Rs 13,000 crore was to come from internal and extra budgetary resources (IEBR). Over the past five years, the capital expenditure of the Railways has grown by 76 percent and the central government’s budget support to it has increased 3.5 times.

But why are the railways not earning enough to generate a healthy surplus? After meeting operating expenditure and making appropriations for pension liability and for renewal of old and worn-out assets, little surplus is left. The operating ratio, or the ratio of expenditure to revenue, has been above 96 percent for the past few years. For the last year, it was projected at 99 percent in the interim budget. A surplus is virtually absent.

Since 2014-15, when the NDA came to power under the leadership of Prime Minister Narendra Modi, the Railways have expanded their network by about 5,000 km. The electrified routes have nearly tripled. The proportion of diesel and electric engines was even then. Now the share of electric locomotives, presumably more efficient, is double that of diesel engines. The average speed of freight trains has improved since 2016 when Mission Raftaar was launched to double their speed within five years. In 2020-21, the average speed of electric trains was 45.8 kmph, almost double the 2016-17 level, but slowed to 38.1 kmph in 2021-22.

There are 1.2 lakh fewer employees on the Railway payroll than 10 years ago. But the wage bill has more than doubled and the average per employee earnings have also nearly doubled to Rs 12.5 lakh per year.

Though freight loading has increased by 44 percent over the past decade, and freight earnings have risen by 64 percent they are clearly not enough to offset costs and earn a large surplus. Rail transport has an advantage over trucks in that the more cargo carried the lesser the fixed cost per tonne. IN the year 2000 the unit cost of freight carried by rail was lower by Rs 2 per net tonne kilometre (NTKm). It also cost Rs 1.6 less to move a passenger over one kilometre than by bus, the Economic Survey of 2014-15 said, quoting a study. The cost advantage should have enabled the Railways to claw market share from trucks.  But the Railways continue to lose traffic to roadways. Railways also emit less greenhouse gases per passenger or unit of cargo, so they should be the preferred mode of transportation from a climate change perspective.

Clearly, the Railways are underperforming their potential. My guess is that they are content to chug along so long as they keep the political bosses happy. Expert committees had suggested that the Railway Ministry should dissociate itself from operations and should only lay down policy. The pricing and other aspects should be determined by a railway regulator. This would provide comfort to private players and bring in competitive pressure. The Railways should be made a company with a board to run it. The top managers should be selected from a wider pool than the Indian Railway Service, who are engineering, not business, oriented. The ministry should set targets and hold the board accountable to them.

A reason for ending the colonial-era practice of presenting a separate railways budget in 2017 was to allow the Railways to focus on their business of efficient haulage without having to meet the political objectives of the political bosses. That has not happened as the over-the-top celebratory events that attended the serial launch of Vande Bharat trains last year demonstrate. When there was a separate budget presentation, the Railways were under scrutiny for at least a day. That is missing. Also, any criticism of the Railways is regarded as an attempt to put the country down and sully the image of the ruling party leadership.

High capital investment is not all there is to Railway performance. The organisation needs changes to truly become the locomotive of the economy.  How this is to be done has been stated by committees dating back to 2001. The Railways need to be more accountable. They used to blame social obligations for poor profitability. With the government generously supporting them, this excuse no longer holds. The Parliamentary Committee on Railways must subject them to withering scrutiny. It would help if the Opposition appointed a shadow railway minister.