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MAKING his last bow before the nation as the railway minister of the UPA regime, Mr Lalu Prasad cut fares, announced new trains, extensions and greater frequencies of existing trains, and declared a legacy of Rs 90,000 crore as accumulated surpluses of the Indian Railways. His interim budget presented to Parliament, to surprisingly little objections from the Opposition, announced that the railways had met the budgetary targets for traffic earnings set last February, but had suffered a rise in operating expenses on account of the Sixth Pay Commission award, which made necessary an additional allocation of Rs 9,000 crore for salaries and Rs 4,500 crore towards pensions.

Though the railways did remarkably well in meeting both freight and passenger revenue targets despite the severe economic slowdown, the Sixth Pay Commission award took off some of the sheen from its finances. Mr Prasad could effect only a modest 2% reduction in passenger fares across classes, a Re 1 cut in fares for shorthaul trains where fares are below Rs 50, and unchanged freight rates.

This, of course, is for public consumption. In reality, the railways has adopted the marketsavvy practice of changing fares and freights all through the year to suit market conditions—slashing freight rates for iron ore when exports plummeted, reducing AC fares when low-cost airlines threatened to take away their higher class traffic, and hiking freight rates for foodgrain and fertiliser earlier this month. The populist minister, however, tried to make up for the lack of big-bang announcements on the fare front in the election year by announcing 43 new train services, extending 14 trains and increasing frequency of 14 trains.
Industry, though, had little to cheer about in the budget except, perhaps, the commencement of construction of the eastern and western dedicated freight corridors. Once constructed, the corridors would provide for fast and efficient movement of goods across the country. The corridor is expected to enable freight trains to run three times faster at 80-90 km per hour, on an average.

Some industry bodies expressed disappointment that the minister did not lower freight at least in some sectors hit most by the downturn. Since there was an 8.3% increase in freight for foodgrain and fertilisers announced earlier this month, the fact that freight was not increased in the interim budget failed to impress industry.

Despite the global downturn hitting demand in several sectors, the railways’ freight and passenger earnings remained well on target. In April-September 2008, when the Indian economy grew 7.8% in real terms, freight earnings grew 19% while volumes increased 9%. Passenger earnings also increased 14%. October and November, however, proved to be bad months for freight because of export curbs on iron and steel. The situation has improved in recent months, allowing the railways to marginally revise upwards the estimates for 2008-09 to Rs 54,293 crore, passenger earnings to Rs 22,330 crore, and gross traffic receipts to Rs 82,393 crore.

The better revenue performance has, however, been marred by a sharp increase in operating expenses, largely because of the higher pay packages recommended by the Sixth Pay Commission for 14 lakh railway employees and 11 lakh pensioners. In 2008-09, the expenditure on salaries has been estimated to increase by Rs 9,000 crore while an additional Rs 4,500 crore has been set aside for pensioners. The revised estimates of ordinary working expenses have been kept at Rs 55,000 crore, up 34% against 2007-08, and the appropriation to pensions at Rs 10,500 crore.

The operating ratio—operating expenditure as a proportion of revenues; the lower this ratio, the more efficient the railways—worsened to 88% against 76% in 2007-08, reflecting not so much any decline in operating efficiency as the burden of the Sixth Pay Commission award. In 2009-10, the ratio is expected to deteriorate further to 89.9% due to the higher allocation for pensioners.

The net revenues of the railways are expected to drop to Rs 11,066 crore from Rs 16,422 crore budgeted and Rs 18,334 crore in 2007-08. This has constrained the railways from allocating more to various funds. In the case of development fund, for instance, there is no appropriation budgeted in 2009-10 against Rs 1,391 crore in 2008-09. The muchhyped investible surplus of the railways has, therefore, dropped from Rs 20,103 crore in 2007-08 to Rs 14,609 crore in 2008-09.

The higher allocation to safety over the years appears to have helped as the number of consequential accidents has dropped from 325 in 2003-04 to 174 in April-November 2008. The interim budget has been presented for the next four months and will be replaced by a full railway budget presented by the new Union government expected to be in place by then.

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