A deterioration in the financial health of the Indian Railways, reflected in its operating ratio, is worrisome. It comes in the way of network expansion and modernisation. Radical reforms are needed to raise Railways’ earnings, involve the private sector to step up investment, increase freight volumes and revenues, and galvanise the economy. Investment is a function of railway finances that will come under stress due to the Seventh Pay Commission’s award. The Railways’ Pension Fund must be augmented for the extra payouts. But rail finances will improve only when the practice of freight and upperclass passengers subsidising lower-class fares ends.
Passenger fares moved up just 28% over the last decade compared to a 91% rise in freight rates. To offset the losses incurred on politically sensitive passenger fares, the Railways have raised freight rates over the years. This has also jacked up the logistics costs, hurting India’s manufacturing competitiveness, says a recent Morgan Stanley research report. The Railways must, therefore, have an independent regulator, with the powers to set tariffs and settle contractual disputes in publicprivate partnership projects.
A doable reform plan has been presented by the Bibek Debroy panel. The government should have the political will to act on it. The Railways should create organisational reforms that will facilitate large-scale investment. The bifurcation of the Railways into two independent organisations — one for tracks and infrastructure, the other to operate trains — makes sense. So does letting private players run passenger and freight trains in competition with the Railways, and hiving off suburban rail into joint ventures with state governments and cities.
Recasting the Railway Board on the lines of a corporate model will improve rail finances. Making railway accounts more transparent will prevent practices such as drawing from the reserve funds to boost the Railways’ balance sheet. A truly healthy balance sheet is what the Railways must have in order to play a central role in globalising India’s transport infrastructure.