Modi's first tough decision: Rail fares, freight to rise "certainly," says Minister Gowda

Prime Minister Narendra Modi set the dovecotes aflutter when, on Saturday (14 June), he told a party meeting in Goa that his government would have to take "tough decisions" that may not be popular, but would have to be taken nevertheless.

While the big speculation is about whether subsidies in fuel and fertiliser will be cut, and by how much, Railway Minister DV Sadananda Gowda appears to have let the cat out of the bag at least in connection with his ministry. It appears that there will certainly be a hike in rail passenger fares and freight. And we can expect major reforms on public private partnerships (PPPs) and foreign direct investments (FDI), among other areas.

In an interview to The Economic Times, Gowda was asked whether he would raise fares and freight, and his answer was “certainly.” No ifs and buts, but certainly. You can’t get clearer than that.

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Mallikarjun Kharge, the Congress railway minister who is now the Congress leader in the Lok Sabha, announced a 5 percent hike in freight and 10 percent in fares, but did not implement them due to the elections. Gowda may not only have to implement these hikes, but also enhance them. That’s one unpopular decision sure to come early in July.

However, the Gowda interview is interesting not just for this information, but for how he drew the veil on the rot within the railways. In fact, he exposes several political tricks adopted by previous railway ministers to take up populist projects that have almost no hope of being completed not only during their tenures, but in their entire lifetimes.

For example, with one number he shows how carelessly railway projects have been announced and how this alone will call for major reforms. He said: “We have some Rs 5 lakh crore worth of projects announced by earlier regimes on ground. But the ministry gets only about Rs 25,000 crore to Rs 30,000 crore by way of net revenue.”

If that’s your resource position, one wonders how past railway ministers thought they could implement projects 20 times the size of net revenues without privatisation and foreign investment. Clearly, having stick-in-the-mud populists like Trinamool members ad railway minister has proved to be a clear loser.

Gowda makes it clear that some projects may take 30, 40 or 50 years to complete for the simple reason that ministers never provided outlays to back their grand plans. A Rs 1,000 crore project that gets an allocation of Rs 10-15 crore in Year One is actually nothing but an effort to fool the electorate. The money will not be enough to go beyond generating the final feasibility report and laying the foundation stone in most cases.

Given the importance Modi has given to developing the railways, including bullet trains and the high-speed railway corridors (the golden quadrilateral), it is clear that Gowda will have to take the railroads less taken: he will have to scrap some projects (or let them wither without allocations), open up railways for foreign investment, allow more private participation, and get more funds from the general budget.

The last is less likely this year. Given the crunch on the general budget, Finance Minister Arun Jaitley will not be eager to give Gowda more grants or cheap funds, but the chances are some of the money will come from users themselves. Coal India and the power sector companies could finance some track construction, some NREGA funds can be used for labour engagement on railway projects, etc.

Modi’s “tough” decisions will not leave the railway ministry untouched, and Gowda seems to be game for playing the role of reformer. No doubt, under Modi’s tutelage.

Read the full Economic Times interview here.