Railways Vote on Account 2014: Multiple reforms needed for Railways to realise its full potential

Railway minister Mallikarjun Kharge has offered useful tips to his successor on how to make the railways healthy, but surrendered to populism by announcing many new trains ahead of polls. Expectedly, the Railways' vote-on-account has left passenger fares and freight rates untouched, but its financial performance is expected to worsen in 2013-14. This is reflected in the higher operating ratio - the share of gross traffic revenues that goes to meet ordinary working expenses including provisions for pensions and depreciation - of 90.8% against the budget target of 87.8%. What is welcome, though, is the projected increase in freight volumes and also larger fund balances. The Railways have scaled up the freight target by five million tonnes to 1,052 million tonnes this fiscal, despite a slowing economy. High diesel prices could have diverted road traffic to the Railways, and the worst phase could well be over for the Railways. Nevertheless, its performance would hinge on how the economy grows.

The Railways should get more aggressive to augment freight, specifically coal, whose shortage is crippling the power sector. Coal remains unmined in remote areas for want of rail linkages. Coal India has the money to invest, the Railways just need to get its act together to provide linkage to new mines. And to ports for imports. The private sector must be roped in to step up investment. Besides, foreign investment in the Railways, sharing costs with states on rail projects - all these make eminent sense.

Freight and fares should be market-driven. Under-pricing of services creates artificial shortages and people would rather pay the full commercial value for transport services including train seats. Rail finances will turn around if the next government resolutely ends the practice of freight and upper-class fares subsidising lower-class fares. Dynamic pricing is also welcome, as also an autonomous Rail Tariff Authority. The Railways need more internal revenues to fund modernisation. However, reforms can be implemented only when the political class stops using the Railways to disburse patronage.