Budget and Indian Railways! Going Air India Way or too far gone already?

The title of this blog would already caution you that this is not going to be anything laudatory as far as Indian Railways (IR) is concerned. Which would not surprise most readers much given that most of my recent writings, not all for sure, do not sing paeans to IR. Most of the readers do tend to agree with me, partially at least if not fully. There is, however,  decidedly a curious brigade of trollers who omit to read beyond the title but start puking, with a common theme being that the author, having failed to secure a cozy post-retirement sinecure, pours out his frustration in these critiques. Little do these pitiable trollers know that there is certain pleasure, to the mind, soul and thankfully, one’s coffers too, in being an independent consultant, far removed from the rut of an advisory role in government, and in the freedom of speaking and writing one’s mind.

 

But it is not about me. It is about IR, an institution I love, warts and all, as a railway man for life and which one may love or hate, but one cannot ignore in India. IR is like that quirky relative who shows up at every family function—uninvited yet indispensable, often exasperating with an ill-delivered joke but occasionally surprising with something delightful. It is about IR almost consistently falling short of the expectations and underdelivering on its own declarations and promises. Which is painful because, as the bard said through Helena in All’s Well That Ends Well: "…Oft expectation fails, and most oft there where most it promises...". How long will we hear from the powers that be that IR remains a great work in progress as we look at IR wistfully with all its endearing quirks? When will its safety and modernization plans stop to be like New Year’s resolutions—enthusiastically announced and quickly forgotten? The promise of bullet trains, world-class facilities and reliability of operations dangles tantalizingly before us, like the proverbial carrot, while we trudge along with déjà vu galore, nineteen to a dozen. It is a bit like expecting Shakespearean sonnets but getting bawdy limericks instead.

 

IR has been struggling with a poor Operating Ratio for nearly  decade now, leaving it with no surplus to take care of depreciation of its assets, let alone surplus to invest in future infrastructural projects. Record investments in its infrastructure have been growing at unprecedented quantum in recent years thanks to the policy of this government in investing in railways as the cleanest and cheapest  means of transport. Is this sustainable? No government is willing to increase passenger fares as it would be politically suicidal, and added to that is the recent knee jerk reaction of IR to reduce the number of AC coaches, It is obvious that it must generate higher revenue from freight traffic. IR’s downward spiral in respect of share of freight business, nevertheless, continues and it stands at a lowly 26%. with other modes having 74% share, mainly dominated by roads. IR lives in its belief that freight market is supply driven, hoping that inducting a lot of wagons and higher power locos in large numbers and network improvements like DFCCs etc. would bring in incremental traffic. Unfortunately, that is not  happening. Today the number of locos is more than 1.5 times, combined traction power twice that of what we had 10 years back and the number of passenger trains has hardly increased; yet, parameters like locomotive utilization, Specific Energy Consumption, NTKM per wagon and average speeds show no improvement and have actually declined.

 

IR’s National Rail Plan (NRP) aims to increase its freight modal share to 45%. As a precursor of this plan, Mission 3000 MT was also launched in 2022 to achieve 3000 MT loading by 2027, up from around 1400-1500 MT where it languished. Key initiatives included increasing wagons, reducing maintenance intervals, improving yard facilities, fast-tracking capacity enhancements, reducing freight transit times, completing Dedicated Freight Corridors (DFCs) by 2024, identifying new DFCs, achieving 100% electrification, and increasing electric locomotives.

 

Mission 3000 MT and the PM’s Gati Shakti initiative also emphasized private sector involvement in rolling stock operations and ownership, developing multi-modal freight terminals, and increasing IR’s share in transporting rapidly-growing Balance Other Goods (BOG), which stood at a mere 4%. The aim was to attract an additional 500 MT of traffic by addressing rail infrastructure constraints.

 

In the last 2 years, the incremental loading should have been in the region of 500 MT whereas all IR has achieved is to reach 1591 MT vis-à-vis 1418 MT in 21-22, a massive shortfall. While the standard bulk commodities transported by IR, except foodgrains, have shown some largely organic incremental growth improvement (ranging between 3% to 8% except iron ore which grew at a healthy 13%) , the big setback is that its share in of BOG, which is  50% of total transportation pie of India, continues to be lower than 5%

 

OK, so I have written all this variously in recent past. So let me stop here and instead look at what my friend Akhileshwar Sahay has to say here:

 

A Budget of Optimism, Hope, and Action: Sitharaman's Bold Blueprint for India's Future

https://www.news18.com/opinion/opinion-a-budget-of-optimism-hope-and-action-sitharamans-bold-blueprint-for-indias-future-8976944.html

 

He gives a thumbs up to budget on multiple counts, calling it once-in-a-decade budget, like, control of fiscal deficit, reduction in net borrowings, bringing to centre stage employment, skilling and internship, Suryodaya focus on eastern states, unprecedented initiative for urban development and agenda for next generation reforms. Reproducing a summary, “The budget is undoubtedly pathbreaking with relentless focus on transforming the lives of four key groups (the poor, youth, women, and annadatas), revolving around four major themes: employment, skilling, MSMEs, and the middle class. These themes, along with nine focused foundational priorities, distinguish this budget as truly unique.”

 

So far so good but soon, after a strong critique on what the budget has for waterways, shipping, civil aviation and airports, follows an acute castigation of Indian Railways, viz.,

 

Whither Indian Railways: The Capex budget is a hefty Rs. 2,65 lakh cr continuously increased vis à vis a mere Rs. 63,363 cr in 13-14. Despite the abolition of a separate budget, this singular focus on increasing capex in railways is a significant achievement of the NDA government. However, as always with Capex, the devil is in the details. The maximum amount is allocated towards black hole items: Manufacturing Suspense (Rs. 59,290 cr), Stores Suspense (Rs. 25,800 cr), leased asset capital payments to the IRFC (Rs. 24,000 cr) and new lines and track doubling (Rs. 34,600 cr and Rs. 29,300 cr respectively). Track renewal receives a paltry Rs. 17,600 cr, while bridges and signalling get meagre allocations of Rs. 4,000 cr each. Customer facilities also receive a paltry allocation of Rs. 17,000 cr, while traffic facilities are left with a mere Rs. 9,000 cr. In safety-marred railways, there is not even a mention of Kavach- the indigenously developed anti-collision devise.

 

Worse, IR is bankrupt. Its Capex is almost entirely met through funds from GBS (including the RS Fund and RRS Kosh), with a meagre Rs. 3,000 cr from internal resources. A question: where are the lakhs and lakhs of crores invested in Capex going and what is the RoR?

 

And what about the expenditure and receipts performance? IR’s revenue in FY25 is budgeted at Rs. 2,73,000 cr (coaching 80000, other coaching 7500, Goods 174500 cr) as against an actual of Rs. 2,54,300 cr and budgeted Rs. 2,60,090 cr. Let alone the examine the revenue and expenditure figures. The working expenses are budgeted total to Rs. 2,73,000 cr. IR teeters at the brink, perilously surviving at an operating ratio approximating 100, which in itself is a sad story made possible with creating accounting- even the most critical Depreciation Reserve Fund has a token provision of Rs. 1000 cr.

 

And there’s a big red flag: the salary and pension bill for IR already stands at Rs. 1.83 lakh cr and after 8th Pay Commission recommendations are implemented and if the Old Pension Scheme is restored, railway finances will go into such a tailspin that even a miracle will not save the IR.

 

Lastly, two critical questions: why is IR, despite targeted Capex, rapidly losing modal share in goods transportation to highways and in passenger transportation to both roads and air? I need a more granular analysis of demand grants to arrive at a reasonable answer.

Setting aside the RoR, have we seen some direct and indirect benefits from the Rs. 12 lakh cr plus spent as Capex since 2014? While Akhileshwar commends the higher capital expenditure trends on overall basis, he questions the productivity and returns on the Capex in case of IR; perhaps because this is the only sector amongst those analysed where an objective analysis of the returns is possible because of the commercial nature of IR. In any case, how far is IR from an Air India type veritable debt trap? Or, does it matter at all as, IR is government itself, not a mere PSU like Air India, and the central government is committed to bail it out, irrespective of its abysmal financial performance, come what may? I would be happy to be educated but who can say? IR is unlikely to indulge the public with the “more granular analysis” that Akhileshwar expects. Instead, it might further restrict the publication of its data, making it need-based as done for a large part of the data it earlier published in public domain, whatever “need-based” means. For now, without smugly declaring “I told you so,” I derive some satisfaction that the questions I have been raising are now endorsed by someone who certainly knows more. As I conclude, I am reminded of a sher by Faiz:

 

Ik tarz-e-taġhāful hai so vo un ko mubārak

ik arz-e-tamannā hai so ham karte raheñge

(There is this intentional indifference in their conduct, to which they are welcome, but we do represent to them our desires, and we will continue to do so.)

...