Rail Budget 2015: Prabhu makes sensible promises, but can he turn Railways around?

The Railway Minister has set a precedent by not announcing any new trains or appeasing political constituencies and it’s a far departure from the populist budgets of Lalu Prasad Yadav or Mamata Banerjee. In the past every Railway Minister would announce trains for applause. While Prabhu’s speech was populist and appeasing to the travellers, as a bulk of his speech focused on them, if all the promises are delivered it will be a great thing.

But an important thing missing in the speech or mentioned only in a passing was the fact that Prabhu has prepared a five-year road map to revive the Railways. Revival is what is needed as the largest employing public sector unit in the country cannot continue on budgetary support, it needs to generate its own surplus. Not just for operations but for investments as well.

The focus on travellers is not new and several ministers in the past have promised piecemeal approaches to improving services but it does not translate into a reality on the ground. It is not easy making a government-owned entity truly customer friendly, but again it is not possible to do so in a private company either. What the government sector can do is provide value for money services which the private sector will rarely do.

It is interesting to note that Prabhu pointed out that he does not see privatization as the only solution and is looking at monetization of assets and borrowings. His stress on borrowings means he will have to improve the financial viability of each project that raises borrowings. This is again an important departure from the past where the focus was on populist projects without financial viabilities. Partnerships with states, the ministries of coal, iron ore, cement and fertilizers to co-develop projects is a welcome step though it comes with its own gestation period. SPVs will be created with each of these ministries to implement projects.

When the Railway Minister has laid down an investment plan of Rs 8.50 lakh crore for the next five years, it is a very high expectation not only because of the amount of the investment.  It is not just the amount to be invested but the challenge is also the deployment of these funds as the Railways are not able to complete projects. Even the last five-year plan targeted investment was never utilized and this was not a failure of mobilisation but of implementation.  Gowda in the last rail budget proposed de-linking program management from operation and it was seen as a revolutionary step.

Suresh Prabhu says that Budget is a policy announcement. “We cannot keep up the vicious cycle of low revenues, poor services and afford losing our customers.   A virtuous cycle is needed and it will take him time to create it,”he said.

In an interview later he said that the Railways will raise funds directly from sovereign wealth funds or pension funds who are willing to lend for a longer period like 20 to 30 years. Acknowledgement of the resource mobilization problem and looking at innovative means to solve it is a great beginning.

One of the biggest disservice that successive Railway Ministers have done to the Railways is consciously reducing capital expenditure and augmentation of capacity. The trend was pioneered by Lalu Prasad Yadav, who diverted capital expenditure to operations and showed operational efficiencies. He also conned IIMS also by showing it as an innovation. Railway Ministers after that rarely addressed the issue as it kept increasing and it was an elephant in the Rail Mantralaya that nobody wanted to talk about.

The reason railways has lost market share in freight traffic to roads and led to rising pollution, higher oil bills and other ills is because capacity augmentation was not done on existing rail lines. Ministers and bureaucrats were obsessed with Dedicated Freight Corridors, a non-starter stuck in land acquisition and they did not augment capacity on existing lines. Prabhu has not taken the brave decision to abandon the DFC for now but he has focused on the building additional lines on the existing network. This is what Railways is good at, laying tracks; and it has a good track record for it too. This is the low hanging fruit as there is no additional land that needs to be acquired and it falls within the existing strengths of the Railway.

What the budget lacked, and I have said it earlier, is that it does not address how the internal reforms of the railways organization structure will be carried out. Railways cannot achieve anything without the structure of decision making, program implementation and delegation of authority changing.

K Yatish Rajawat is a senior journalist and policy commentator based in Delhi he tweets @yatishrajawat