Doing Away with Railway Budget May Not Ensure Efficiency

Will merging the railway and the general budget push the Indian Railways to deal with financial distress?

We do not think that the Indian Railways can be modernised, improved and enlarged, so as to give India the service of which it is in crying need at the moment, nor that the Railways can yield to the Indian public the financial return which they are entitled to expect from so valuable a property until the whole financial methods are radically reformed.

William Ackworth Committee report, 1921

This quote is from a 1921 report of the William Ackworth Committee. The ten-member committee had recommended, among others, “the complete separation of the railway budget from the general budget” and “emancipation of the railway management from the control of the Finance Department”. That is how the tradition of having a separate railway budget came into being in 1924. The idea was to turn the railways into a commercial enterprise with very little interference from the executive arm of the government.

Now the government has decided to repeal the 1924 decision and merge the two budgets.

A five-member committee consisting of officials from the finance and railway ministries is to be constituted to look into the modalities. The committee has to take a call on, among other things, whether the railways should go ahead with the accounting changes initiated at the behest of the World Bank, how project approvals are to be obtained and what the way forward will be for the railways’ dividend to the government. If the committee decides to go ahead with the earlier system of accounting it will be a retrograde decision.

Earning Lower Than Cost Incurred

The Ackworth committee had advocated a separate budget with a view to bring in more efficiency as the railways accounted for bulk of the then colonial government’s revenue (Rs 80 crore of the railways out of the total revenue receipts of Rs 180 crore in the early 1920s). It did not become an efficient enterprise then and it is far from one even today. And the structural issues that existed then have perpetuated all these years.

The mismatch between the cost incurred and the return is one of the many indicators that brings that out clearly. According to one estimate, for mail/express trains, the earnings per passenger km were 22.6 paise in 2014-15, while the costs were 38.3 paise. For ordinary trains, the earnings per passenger km were 15.5 paise, while the costs were 49.1 paise. (Figures taken from the Interim Report of the Committee for Mobilization of Resources for Major Railway Projects and Restructuring of Railway Ministry and Railway Board. The committee submitted its report in March 2015.)

Is it because of the size? With 21,000 trains carrying 23 million passengers and 3 million tonnes of freight every day, ours is the fourth largest rail network in the world after the US, China and Russia. Size clearly is not an issue but non-commercial considerations while taking decisions is one of the important ones. From setting up railway zones to introduction of new trains, commercial calculations to weigh projects and expansions are almost always ignored.

• William Ackworth Committee recommended separation of railway budget in 1921.
  
• The idea was to make the railways a profitable venture.
  
• Railways earns mere 22.6 paise per passenger kilometre against the incurred cost of 38.3 paise.
  
• Commercial calculations to weigh projects and expansions are regularly ignored.

Trains Introduced without Commercial Consideration

We had just nine railway zones till 2002. Eight more have been added since then. And as many reports have pointed out, many of the new ones make very little economic sense. The situation is no different when it comes to the introduction of new trains.

The committee observed that “several requests are received for the introduction of new trains and extensions of existing trains. These are ostensibly scrutinised by a Zonal Time Table Committee and subsequently by a national Inter-Railway Time Table Committee (IRTTC). Thereafter, decisions are taken about new trains and extensions. A scrutiny of IRTTC minutes reveals that there is rarely a scrutiny of what the costs and benefits are of such decisions, of what such new trains and extensions mean in terms of disruption to existing traffic flows. At best, there are assertions about ‘demand’ and a check on whether rakes and locomotives are available.”

What is worse, the railways does not follow a commercial accounting system. “One doesn’t quite know the accounts for fixed railway infrastructure, passenger traffic, freight traffic, suburban railways and the production and construction units,” according to the committee.

Will any of these change if the rail budget is merged with the general budget? While the merger may result in ease of raising resources for the railways, and that will be a huge advantage, it alone may not address several structural issues listed above.

Granted that the railways has to fulfill social obligations which may not pass the commercial consideration test. But that cannot be the core of what the national transporter does.

Also read:
Abolish Railway Budget Speech, Increase Parliamentary Oversight
Here’s Why Scrapping the Railway Budget May Not Be a Good Idea