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Thursday, February 25, 2016

Railway Budget 2016

I eagerly await Railway Budget every year. Though I keep telling myself, Railways does not deserve a separate budget, but the old colonial ritual continues and frankly, I am not complaining by the extra attention Railways get as a result in the parliament.

This year, the expectations were huge. Mr. Prabhu has been one of the few Railway Ministers who has been working hard behind the scenes and not trying to take credit for all populist decisions. Indeed many of the decisions of Railways under his leadership has been anything but popular. While we, the railfans, have criticized some of his decisions, but mostly, we have recognized that he is looking at the medium to long term revival of Indian Railways. We were hoping he will share with us his vision on how to take the huge transporter forward, and he has not disappointed us. To be more precise, he has many great points in his speech, though we have seen that sometimes the devil is in the details.

First, the disappointments. The operating ratio is projected to be 92, which is terrible. Yes, it is partly due to 7th pay commission. But any which way you look at it, this really sucks. And we know historically that the final ratio is worse than what one projects in the budget. If this is the best you could do, why did you not raise fares. Several good intentioned Railway ministers in the past have talked about increasing the non-tariff revenues, but it has never been realized. You can't increase the cost of food any more than you can increase the fares. You can't increase the cost of retiring rooms and in any case, that is hardly any income. You can't have too many advertisements on the coaches without people crying foul. Every Railway minister has talked about exploiting space around stations in the big cities. Hasn't happened and there are reasons for that. So, I am convinced that 92 will only get worse, but even if it doesn't, it is terrible to begin with.

I know with Diesel costs being significantly lower, it was difficult to increase fares. And a lot has already been done in the last few months outside the budget - increase in cancellation charges, more Tatkal seats, more dynamic pricing seats, etc. Even this time, my friends in Railways tell me that the plan is to increase the number of Tatkal seats even more and run more and more trains on dynamic pricing. But I think it was important to also raise the base fares. And this time, it could have been sold politically by arguing that he has proposed so many improvements in passenger services.

The second disappointment was the announcement that NAIR will be converted to first Railway University. The earlier announcement was for setting up only one Railway University, in Vadodara, and it was said that NAIR campus will be temporary home before they can build a campus elsewhere. Today's announcement is faulty on two counts. One, converting a purely training place to a university indicates that perhaps Railways is not emphasizing the research and development aspect. There is such a huge need to do R&D in railway related topics in the country, and one was really hoping that Railway University will take the lead. The second issue is that the announcement indicates that in future, Railways might want to convert their other training centers into universities. I think there is a space for both training on one hand, and education and R&D on the other. To top it all, there is no announcement on when it will start and what will be the structure of the university.

I am happy to see a reference to Vikalp in the speech and an announcement that alternate train accommodation in specific trains will be provided. I take it as that in future, when I make a waitlisted booking, it would be possible to specify which is the alternate train I would like to consider. This is what I had said in my earlier blog about Vikalp that without allowing specific alternative train, it is really of very little use. Railways seem to have figured that Vikalp wasn't a big success.

Monetizing soft assets is great, as is monetizing infrastructure, and all other "hard" assets. He specifically mentions in his speech that privacy of the passengers will be protected, but I remain concerned about that. I hope they will only "sell" statistical data. But the comment about their allowing free access to enquiry is being exploited by other private players displayed a lack of understanding of the issues. What stops Indian Railways to come up with a site better than erail or railinfo, etc.

The overdrive to do electrification was a bit disappointing. If we have been doing electrification at a slower pace, it is usually due to a strong rivalry between pro-electric and pro-diesel lobbies. And both lobbies have their strong arguments. Most of the trunk routes (both for passengers as well as for goods traffic) have been electrified, and it is not obvious whether in the remaining system, electrification is so profitable an investment compared to other needs like doubling or improving signaling and communication.

Booking of retiring rooms on an hourly basis is a great idea and something that I have written about in the past. (I have argued that Railways has the strongest position in overnight travel market. And if Railways can provide a clean place to quickly get ready in the morning without having to pay for a full day's rental, it can fend off competition with other modes - both air, and the sleeper buses.) Of course, devil is in the details. How will this work. Can I book a specific hour in advance. If yes, what happens when the train is late. If no, what happens when several people queue up in the morning. Who gets the room first. I hope they will also create sufficient capacity or even get into a deal with nearby hotels to offer the service to a larger customer base.

The biggest announcement to me was an attempt to reorganize Railway Board. It has been talked about for as long as I remember, a few decades at the very least, but inter-cadre rivalries within Railways are difficult to handle. I do hope that we can have a restructuring done at the top level to make it more responsive to markets and customers, and Mr. Prabhu is best placed to carry it out. Not only he has the credibility and intellect, but also the trust of the PMO.

There were other announcements which have been made in the past one year but had been consolidated in the budget speech. The partnership with states to invest part of the cost in building infrastructure. Raising of funds from LIC and market in general, I hope all of it is not from government controlled sources, which as we know can be controlled, and have resulted in huge NPAs for our nationalized banks. PPP model for a lot of investments. Things which have been said again and again, but there appears to be hope that Railways now understand how to convert these intentions into successful plans.

The best part of the budget was kept for the last. I am not sure how many would appreciate the import of the seven missions, but they really have the potential of changing the face of transportation in India. Some of them are more ambitious than what seem possible in today's environment, but not impossible goals, and that is how these things should be. You should exert the pressure on the work force to do slight beyond what seemed the limit of possibility.

I don't know why all the great announcements were made at the end, but I am also very excited about the data analysis part and having a 50 crore fund to support innovations and start ups. I hope he will continue to encourage Indian Railways to interact with academia as he has done in the past year.

Overall, a lot of promise, a lot of new ideas, a lot of initiatives, a lot of hope.


Unknown said...

Generating hope is easier, delivering is difficult

anon said...

Do you have any thoughts on decentralising railways to allow state governments develop on their own, but the Centre works only on inter-state routes or on developing certain national corridors? I have felt that states like Karnataka have been nearly left out of Railway radar due to lack of political power at the centre. I had never boarded a train until I first came to IIT-K and my friends in the north couldn't believe it! I just can not imagine bus transportation of the entire country being run by a single central government ministry. May be the analogy is wrong because the fraction of current railway routes run only within a state is low, and if its low I wonder if it is because states have no power on this. Of course the issue is complex and involves many details like who builds & maintains tracks, non-passenger trains, etc. It would be great if you can write about pros and cons of decentralising Railways! thanks.

Dheeraj Sanghi said...

@Vishwesha Guttal, very interesting point. Never thought about it. Even if go back in history, Railway companies were inter-state. By the way, the Railway Act allows states to have their own railways, and state governments can even allow private players within the states to set up railways (except that if you were to do that, Indian Railways would probably refuse to have any dealing with you). The problem is that railway is profitable only when there is significant freight, and freight is almost always long-distance traffic, and hence intra-state railways are not likely to be profitable. We have Metros as examples of intra-state railways and if they can be cash flow positive, we feel happy about them. We don't worry about depreciation, and of course, we assume that states would have to give land and provide all sorts of support (read, subsidy) to them. And this is when Metro systems are being built only in places with heavy passenger traffic.

What I hear from my south Indian friends is that the bus companies are too strong a lobby there,and whenever there is an attempt to improve Railway infrastructure, they will lobby to scuttle the plans. Even CK Jaffer Sharief could not do much, even though he was bold enough (and some may say, brash enough) to launch the Project Unigague.

Unknown said...

Dear Dheeraj,
Well thought out, as always. There has to be a mechanism by which the railways is motivated to test and incorporate innovations. Say if some company invents a better pantograph, how does it sell it to the railways, which will always go by the lowest quotation?

Dheeraj Sanghi said...

@Sudipta, of course, it is possible. Railways can always do pilot projects. Then it can have tender with improved specs. Or it can have tender which will have separate weights for technical and commercial terms. You being in a government institute should know all these options.

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