Bansal has bamboozled us with 'reform' talk in Rail Budget

The benchmark for what passes for ‘reforms’ in India is today so low that just about anything is hailed as ‘reformist’. Railway Minister Pawan Kumar Bansal’s budget on Tuesday has bamboozled sufficient numbers of even discerning media commentators into believing that it is a visionary document.

“Reform Express rolls,” reads one newspaper headline. Bansal’s Budget is “high on substance,” gushes another. Bansal chose “pragmatism over political posturing,” claims this report.

But scratch the surface of these analyses, and the argument that Bansal’s Budget is “reformist” or “visionary” quickly derails.

For sure, Bansal invoked the lofty rhetoric of fiscal prudence, and projected a marginal improvement in the Railways’ operating ratio (working expenses as a percentage of traffic receipts). As compared to a Mamata Banerjee, who as Railway Minister in 2010 said that she would be swayed rather more by the Railways’ “social responsibility” (which is nothing but a code word for reckless spending without the faintest accountability) than by considerations of “commercial viability”, Bansal at least articulated the wisdom of living within one’s means.

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[caption id=“attachment_639424” align=“alignright” width=“380”]  Pawan Kumar Bansal hasn’t quite walked the talk on reforms. PTI[/caption]

Yet, the fine details of the manner in which Bansal achieved the relative efficiencies in the operating ratio, and the fact that they have been offset by other measures, such as the pledge to add to the Railways’ already bloated workforce, bode ill for the long-term health of the Railways.

As Firstpost noted on Tuesday, the “efficiencies” that Bansal touts were achieved be slashing the capital fund, the development fund and the provision for depreciation - which will be a drag on future expansion. Cutting back on new lines and on track renewals and scaling back on wagon procurement too helped to improve operating ratios. But they come with costs - in terms of foregone capacity and revenue and, more ominously, railway safety.

Yet, Bansal’s gravy train of goodies made all the political stops that his political masters would have required of him, as _Firstpost_ noted here . And although there is manifestly no money even for important projects, there’s evidently enough available for what Mamata Banerjee may have considered its “social responsibility” - such as the decision to recruit 1.5 lakh new employees, evidently with an eye on the 2014 elections.

For sure, Bansal took the first step towards freight rate rationalisation by linking them to fuel prices. Yet, by not extending such a provision to passenger fares, on which he said the consultation process was yet to be completed even a year after it began, Bansal has failed to address the far more egregious instance of the politicisation of the pricing mechanism.

In a larger sense, it is the UPA government’s regressive tinkering with the pricing mechanism in, for instance, fuel prices that has accentuated the problems to the macroeconomy by bloating subsidies. Recent efforts at deregulating diesel prices, for instance, are only a rearguard action to undo the damage of the past nine years.

It is in that context that the pointers from Bansal’s “ benchwarmer Budget ” cast a shadow on the Union Budget, which P Chidambaram will present on Thursday. As with the Railway Budget, the Union Budget will likely achieve the reduction in fiscal deficit by scaling back on Plan expenditure, which will likely cannibalise future growth, without taken the hatchet to wasteful non-Plan expenditure.

Given the readiness with which the bulk of the pink press has fallen for the narrative that Bansal’s Budget is reformist, it seems likely that with the Union Budget too, hyperbole will swamp out reasoned analysis. We’ve already seen plenty of that hyperbole, when the mere artifice of raising administered prices has been hailed as “reformist”, even though no meaningful effort has been made towards deregulation of the economy.

In Chidambaram’s case, he has a well-earned reputation as the Houdini of Budget numbers. In the past, he has played smoke-and-mirrors with Budget arithmetic, seemingly managing to enhance welfare spending while simultaneously keeping deficits in check and pleasing the markets. As with the Railway Budget, however, the judgement must await a more clinical analysis of the numbers.

Bansal has been given a free pass on his gravy train, with commentators buying too readily into his ‘reforms’ rhetoric even though he hasn’t quite walked the talk.