Is Indian Railways a Kingfisher in the making?

If Indian Railways does not find a clear path to funding, it might well go the way most full-service airlines in India are going.

According to the All India Railwaymen Federation, the railways has now begun deferring payments of certain employee allowances like overtime, night duty and travel allowances, reports BusinessLine .

If this is true, it indicates the growing funds crunch at Indian Railways.

This year, after nearly a decade of not hiking passenger fares, rail minister Dinesh Trivedi had proposed raising fares by 5-15 percent across the board, desperately needed for ensuring the survival of the railways.

But the hikes were frowned upon by his own party boss, who dumped him and had Mukul Roy installed as the new rail minister. Roy, in turn, rolled back most of the hikes. For the railways, that means a loss of more than Rs 5,000 crore in the passenger segment. Railways’ workers had, therefore, asked for budgetary support if fare hikes could not be allowed. To date, there’s no word on that.

For almost a decade now, Indian Railways has been using freight traffic income to subsidise passenger fares. According to an article in Economic and Political Weekly , that has two effects.The first effect, according to S Ananthanarayanan, a former financial adviser and chief accounts officer of Western Railways in Mumbai, there is excessive pressure on freight rates.

For instance, this year, the per kilometre rise in freight rate is more than 23 percent. In the case of coal freight, the hike is an even higher 28 percent. So, in India, the ratio between what the passenger pays to travel a kilometre and what freight charges are for a kilometre is one of the highest in the world. This makes the industry suffer.

Worse, when the economy goes through a downturn (as it is now), freight traffic comes down, which means the railways will not be able to recover their losses in passenger segment through freight either.

The second effect of this cross-subsidisation is on safety. A key requirement of expenditure is funnelled towards replacing equipment or portions of bridges that are deemed unsafe. “One of the first casualties of a money crunch is in the large area of replacements. To allow the railways to manage with less income is to invitea fall in standards, particularly of safety,” the EPW article warns.

The government has provided Rs 9,500 crore under the Development Reserve Fund this year. But how much of this money will actually be implemented is a big question mark. A committee headed by Sam Pitroda has said the railways need Rs 1 lakh crore to deal with their safety concerns. While that might be a little exaggerated, there’s no doubt that spending is needed to improve safety standards.

Given that the central government is struggling to pay for its social spending schemes, it cannot provide much budgetary support to the railways. Hence, there is no option but to rationalise fares. Apart from passenger safety, even the workers need to get their dues.

Hiking fares, which will allow the railways to spend more on improving its appalling safety standards, will be more useful to the commuting public than letting fares stagnate artificially for years. Otherwise, we might just end up with another Kingfisher on our hands.