What Can Suresh Prabhu Do To Revive The Indian Railways?

What Can Suresh Prabhu Do to Revive The Indian Railways?

The Indian Railways (IR) is broke. And so is the Government of India (GOI) in context; despite a $ 2 trillion economy, and $ 333 billion in foreign exchange reserves. This is because of the immense developmental back-log, and the massive ambition to not only revive but bring the IR into the 21^st century at the earliest.

The States of the Indian Union, long slack on fiscal prudence, are also financially strapped, subsisting on massive bank overdrafts to tide over their revenue deficits, paying out high interest costs. Almost uniformly, excepting Gujarat, they have little or nothing left over for development.

None of these entities have the free and clear funds, or the ability to substantially finance their development ambitions. The Centre too cannot do very much on its own without losing a grip on the nation’s fiscal deficit, with dire consequences to follow. There is therefore a very good reason for Modi’s hectic international diplomacy seeking investment pledges, conducted over the last nine months and ongoing.

All that the usual IR budgets can do, is pay for its gargantuan day-to-day needs. The stark truth is that years of socialist practice and pathetically low growth, has impoverished this country, and left all its institutions, structures, and facilities in an inadequate and dilapidated state. Indian infrastructure is at least 50 years behind that of any civilised nation. The population meanwhile, has more than tripled since independence!

When a Government, as committed to development and progress, as was the erstwhile Vajpayee Government, or the current Modi Government, comes to power, it faces  considerable challenges. And yet the Vajpayee Government found the wherewithal to implement the visionary Golden Quadrilateral Project. And this administration, despite difficulties, will also most certainly deliver.

The current Railway fares, amongst the lowest in the world, were indeed raised in 2014. Passenger fares went up 14.2%, and freight by 6.5%. This after the UPA refused to bite the bullet.  The hike has provided a modicum of relief to IR’s stressed balance sheet. But there is also a looming pension bill crisis, threatening to swamp IR finances altogether.  Besides fares alone cannot cope with the IR’s development financing needs.

The 50% drop in international fuel prices, coming as a windfall over the last nine months, has certainly helped a bulk consumer like the IR. But plans mooted as early as August 2014, to privatise various railway projects, ran into stiff trade union opposition.

But if not national and international private sector money, then what? Can the Government go in for bilateral financing and technological support, with interested countries such as China, Japan and France?

This may indeed be a good option, and is expected to be the central theme of Suresh Prabhu’s path breaking maiden Railway Budget on the 26^th of February 2015. Bilateral cooperation between India and a slew of interested nations, supported by lending from international lending institutions, will pay for most initiatives from the manufacturing of modern rakes and wagons, rail-track, electrification, signaling equipment, bio-toilets, extension of the railway network, the dedicated freight corridors, revamping of railway stations, high speed trains, upgradation of existing networks, safety infrastructure, digitization of processes and so on.

This makes sense. Infrastructure projects have long gestation periods, and slow return on investment trajectories. Private manufacturers, who make a lot of what we need internationally, can then supply equipment and know-how under the aegis of a Government umbrella; with attractive profits for them, and now without attracting the Leftist political backlash.

To bring the entire IR system into the 21^st century is a massive task. We have the fourth-largest network in the world, but it still does not even connect many parts of the country.

The magnitude of all the expected expenditure on IR will also have a beneficial effect on the GDP. It is at nearly 6% now, and headed towards 7% in fiscal 2015. This makes India the fastest growing economy in the world,  but rising from a low base of $ 2 trillion, compared to China’s $10 trillion!

 Railway Minister Suresh Prabhu wants to finance at least the start-ups from domestic resources. He has been publicly pleading with the Ministry of Finance (MoF) to let him access the over Rs. 6 lakh crore in public pension funds.  But will the MoF agree?  

The Indian Railways also owns a great deal of prime land. And theoretically, could exploit it commercially in collaboration with private developers. Will its unions allow this?  Even if this comes about, liberal terms must be offered, and big brotherly attitudes, typical of sarkari tendering, have to be curbed. Besides, this can only yield results and cash flow gradually, and does not address the immediate requirements.

So, on balance, all hopes are indeed pinned on bilateral funds to make this Railway Budget a grand success.

For: NitiCentral

(797 words)

February 22, 2015

Gautam Mukherjee