Prabhu's maiden Rail Budget today: Six ideas that can change Railways' future

The most crucial thing for the Railway Minister is to bring back profitability and sustainability into the functioning of Railways. Every year Railways has been borrowing money from the government to bridge its deficit, this can only stop if Railways improves its services on the freight front. The real potential of the largest rail network in the world remain unrealized as freight is treated as a step sister by successive Ministers. Too much focus is there on the passenger fares while the real story lies in how Indian Railways can boost the economy of the country. [caption id=“attachment_75947” align=“alignleft” width=“380”]  AFP[/caption] This mean that you have to fight the road industry lobby that comprises of auto, truck and construction companies. They have led us to believe that roads are important and that they are even a crucial infrastructure for development. So much so that elected representative addresses the issue of roads first. Roads, particularly highways are becoming highly discriminatory in nature, not allowing two wheelers or even pedestrian. One could argue that they serve only a section of the society. One could even argue that they serve cars and trucks more than people. This debate has not taken place in our country. We do not discuss public transportation versus spend on roads. We do not discuss the expenditure on railways versus the expenditure on roads, both are alternatives. But by putting them in different ministries we have effectively curtailed any discussion on these issues. Freight services generate profits, which are diverted to subsidize passenger fares, leading to an overall loss in operations. Freight accounts for more than 70 per cent of revenues but does not get the attention it deserves. Development of freight services has been ignored over the years, and Railways has been losing market share to road transportation. Even though, road transportation is an in-efficient way of transporting bulk cargo and it is far more polluting. Depending on road transportation also has a direct impact on our oil bill and affects the cost of doing business. Logistic costs also have to be taken into account from an overall countries competitiveness point of view. If the cost of shipping a product from factory to port is too high it will reduce its demand overseas. Trucks add to congestion in cities and highways they are inefficient as a transport unit. But the truck manufacturers lobby is a strong one, working quietly behind the scenes on higher investment in highways. Investment in Highways needs to be balanced with investment in building the Railways freight infrastructure. An abridged version of these suggestions was written for www.qz.com. 1. Railway charges freight on the basis of the shortest route to the destination not on miles or kilometers travelled. Though, congestion on high traffic routes means that the shortest route is rarely taken, a fact pointed out in several CAG reports. Freight prices need to be recalibrated in such a manner that every booking is profitable and the customer gets a rate that is consciously lower than road transportation. Currently, profits on freight are divided on a zonal and divisional level through apportioning of route travelled in these zones. This is an old way of accounting and reduces accountability for making a freight profitable. Internal adjustments are made to share freight revenues between regional heads. Every booking has to be profitable and higher share of the revenues and profit should be given to the center that makes the booking. Reducing the total time a freight is on tracks should be reduced. There is no clear picture of profit on each booking nor is there any incentive for a zone to send the traffic through the shortest route. Freight traffic is the first one to be diverted in case of congestion. This mindset has to change and will do so only if it is measured how long does a freight train takes to clear a zone and what improvements have been done on timings. This does not need very sophisticated system, GPS systems used by small fleet owners already do this. Railways can learn from this and implement them quickly. 2. One of the largest items of freight is iron ore and here there are numerous scams. This has made ore as a category a loss making item for Railways. This is ironic and shows the rot that has set into the Railway bureaucracy where scams are commonly perpetrated by manipulating the books. In iron ore, concession is given on freight and as this is controlled by railway officials it is easy to manipulate. South Eastern Railways has admitted to freight evasion of Rs 1875.63 crore in 15 cases, the real evasion maybe larger. This can be controlled by payment of full freight first and concession to be repaid or be adjusted against future freight payment. This can ensure cash flow and check evasions. 3. The total capacity of both rolling stocks and locomotives for freight is very poor. Unlike passenger services where capacity is vocally demanded and added. The demand for increasing freight capacity is rarely raised as an issue. Procurement of locomotives is slow due to dependence on domestic manufacturing. Railways need to look at lease and maintenance models to augment capacity similar to private airlines that survive on leasing aircrafts. Global manufacturers would be more than eager to offer locomotives on a lease model. Only thing is how to handle the domestic lobby of suppliers. 4. Even rolling stock or wagons supply to the railways has been poor both from public and private enterprises manufacturing them in India. Here also new lease model that reduces the initial capital expenditure and spreads the payment over a period of time can be tried. This would ensure that these companies who have virtually monopoly on the production can be assured payments. It is important for Railways also as it has a cash crunch that can only be bridged if it able to have much higher capacity on the network. Supply from China need to be considered with Chinese banks funding the lease, a model perfected by several companies in oil exploration, and even telecom. Chinese banks will very keen to fund the Railways supply of rolling stock we need this funding but have to be careful about the long time riders on this. 5. Freight traffic was 975 million metric tonnes (MMT) in 2012 and is expected to grow to 1405 MMT by 2017, a CAGR of 7.6 % during 12-17 according to Aranca Research. But expansion is not keeping pace with this demand as Railways does not have any surplus. Huge project like the Dedicated Freight Corridor (DFC) are stuck with land acquisitions and financing issues. Smaller projects some 800 odd ones are not getting the attention because of the obsession with DFC. DFC is a $16.7 bn project that was expected to be completed by 2017. But as per its balance sheet for 2012-13 the cumulative project execution of just Rs 2334.43 crore (approx.$400million) has been done. Spending time and efforts on DFC comes from a mindset of all or nothing. This has to change, incremental capacity is as important and smaller projects between ports and clusters need to be developed on a priority basis. One of the biggest bottle-neck to power sector is delivery of coal and rail linkages from mines to power plant an area that has been neglected by Railways. The coal minister is looking at rationalization of logistics in such a manner that the supply is assured to power plants as well as costs are not too high. This is an important area from a growth perspective hence it needs much higher level of attention from both these ministries. 6. Railways has tried and tested PPP models the success rate has been poor. Privatization cannot fill the gap in freight capacity. For instance the Automobile Freight Transport scheme was announced a few years back and got a lukewarm response with only Maruti-Suzuki showing interest. But no progress has taken place on it since then due too may constraints, the policy needs to be revised. PPP should not be seen as an alternative to investment or to shirk away from areas where only government can invest. One of the learning from the PPP initiatives has been that private sector will not invest for long term annuity kind of returns, they look for short term returns, and they cannot be relied on creating infrastructure. It is important for Railways to take the learning on PPP on infrastructure projects into account before planning any further PPP models. K Yatish Rajawat is a senior journalist, based in delhi he tweets @yatishrajawat.