Why Railways is going downhill

The Indian Railways has indicated that it is unlikely to reach the operating ratio (operating expenses to revenue) of 91.1 per cent projected in the Budget for the current year (2011-12).

This is unfortunate, not unexpected.

When the Budget was presented, it was anticipated that the improvement in the operating ratio would be 'hollow'.

The ratio (the lower the better), which deteriorated sharply in 2009-10, made some improvement last year.

. . .

But a lower (arithmetically higher) target was set for the current year and now even this seems beyond reach.

The scepticism, displayed long before the financial year-end is in sight, is intriguing since revenue performance in the first five months of the current financial year is along projected lines.

Revenue has gone up 10 per cent in what is really the lean season.

Assuming that some of it will be made up in the coming busy season and there is the usual peaking toward the end of the financial year, the target of 12 per cent topline growth seems achievable.

. . .

The main non-performer has been carriage of iron ore for exports (currently under Supreme Court restrictions), which have dropped 41 per cent in tonnage.

Also, overall earnings from the commodity, including shipment for domestic consumption, have been stagnant.

In fact, price realisation from freight, the main profitable operation, has improved -- average earnings per net tonne kilometre have gone up 4.1 per cent in the first five months.  

If revenue is performing but margins are likely to fall, then attention must shift to the expenditure side.

. . .

The railway finance commissioner has held forth on the impact of the Pay Commission's recommendations but these are quite ancient by now and the impact, including arrears, was easily calculable when the Budget was formulated.

It is also difficult to believe that expenditure under major heads like fuel has shot up in an unanticipated manner.

Thus, it seems the Railways deliberately underestimated expenses in order to window-dress the Budget.

It has also been indicated that the axe is likely to fall on plan spending when that is the last area that should be touched since it impacts safety and easing of bottlenecks needed for capacity expansion.

. . .

The one thing that the organisation has done is to appoint committees.

An expert group has been set up under Sam Pitroda, with Deepak Parekh among the members, for modernisation.

Another committee, under the same leadership, was set up two years ago to drive the use of information technology in the Railways.

What will be the fate and productivity of the committee headed by Amit Mitra, currently West Bengal finance minister, for innovative funding of projects under public-private partnership when the Railways itself is having second thoughts on such projects?

. . .

Then there is the committee on safety set up under the leadership of Anil Kakodkar, former chairman of the Atomic Energy Commission.

If committees were horses, then the Railways would fly.

The ills of the Railways are so basic that you do not need expert committees to tell you what needs to be done: raise passenger fares to correct the financial shortfall and offer dynamic leadership so that employee morale improves and accidents can be prevented.