Will Chidamabaram emulate Laloo!

MR Laloo Yadav has managed, yet again, to present an impressive Railway Budget, his fifth in a row.

Let's take a very quick look at the highlights of the Railway Budget...

Passenger fares reduced across the board; Second class fares for journeys over 50 km to cost 5 percent less; Sleeper fares down by 5 percent; AC III-tier fares cut by 2 percent; AC II-tier fares reduced 4 percent; AC first class fares down 7 percent; Freight charges for petrol and diesel cut by 5 percent; 53 new trains to be introduced; Safety plan for railways, closed circuit TVs on stations; Rs.2.5 trillion for technical modernization; Wait-listed e-tickets to be introduced; Tickets to be confirmed through mobile phones; 20,000 km of high-density network planned; 30 major stations to have multi-level platforms; Rs.400 billion investment in commercializing vacant railway land; To acquire land for new projects; New rail coach factory in Kerala; Energy conservation by replacing 600,000 bulbs with compact fluorescent lamps (CFLs); 2,500 old signals to be replaced by railways; All level crossings to be manned; Staff benefit fund to be increased by 10 times this fiscal; Only stainless steel coaches to be made from now on; Many Rajdhani trains extended to cover more destinations; Rajdhani and Shatabdi trains to have new coaches by 2011; Hospital trains to be introduced with healthcare and operating facilities; 16,548 km of railway track to be replaced; 1,000 over-bridges to be built with 50 percent participation by states; Railways to build cargo terminals in 50 major locations; Private companies can have their own cargo terminals on railway land; Wagon leasing policy introduced to facilitate business; Additional Rs.200 billion earned on freight services; 790 tonnes payload or weight per freight train target achieved; Payload to go up 78 percent by increasing wagons to 58 from 40; 15,000 freight wagons to be added; 470 engines to be added in 2008-09; 15,000 automated ticket machines by 2009; Smartcard technology for ticketing system; Rs.40 billion to be spent on green toilets; More trains in peak season.

Some of the financial highlights are as follows:

- Rs.25000 Crores in profits in 2007-08
- New earnings of 21 percent in 2007-08
- Rs.30000 crores to be spent on network expansion
- Rs.49250 crores invested in new projects
- Cash surplus in 2007-08 at Rs.25000 crores

In order to understand Mr Laloo"s Budget, in financial terms, it would do us good to get some basic facts about Indian Railways.

- India has amongst the lowest rail fares in the world. An Indian consumer"s fare is about 50% of what his Chinese counterpart pays.

- In sharp contrast, Indian Railway"s cargo fares are among the highest. Even after the 5% reduction announced by Laloo, cargo fares in India are costlier than China"s, by at least 25%.

- Further, please bear in mind that only about 35 to 40% of all cargo traffic in India goes thro" the Railways. Railways" share has been falling consistently over the years.

The main issue then, for Mr Laloo to handle in this Budget would have been to look at strategies to increase Railways" overall share in the country"s cargo movement. We don"t find any clear policy directives aimed at this, which in my opinion, is a great opportunity lost. Given Railways" reserves, Laloo could have gone in for an aggressive cargo price reduction aimed at increasing the cargo volumes, which could have compensated the Railways for the decreased fares.

Another area which Mr Laloo could have handled better, is in terms of the pricing for the AC-II tier fares. Given the cash surpluses that he has been able to generate, one would have expected Laloo to take aggressively reduce fares in the AC-II Tier and AC-III Tier catogires. As per the railway ministry estimates, between April 1 and December 31, 2007, the number of passengers traveling in the AC-II tier segment grew by just 7.46 per cent compared to 23.65 per cent in the previous year, pointing out to the intense competition from the low cost airlines. A 5% reduction announced by Mr Laloo is rather inadequate and given his huge reserves as aforesaid, Mr Laloo could have gone in for the kill, by reducing AC-II tier fares by, say, 10 to 15%. This again, is an opportunity lost.

Despite these, Mr Laloo"s Budget has a lot of positive factors including the announcement of the provision of investing Rs.1 trillion ($25 billion) for public-private-partnership (PPP) to upgrade and modernize the Indian Railways.

One question which keeps coming back is…… is the Indian Railways really making the very high 'profits" that the Minister claims its making, over the years….. on a commercial and accounting sense. As is well known, the Indian Railways is a part of the Government and not being a company, it has no need to follow basic accounting principles and practices which any public sector company has to follow. This means that the Indian Railways does not make provisions for many expenses and losses, including bad debts, which we are told, runs into large numbers. There are also concerns about the depreciation policies and there are reports that adequate depreciation provisioning is not made. In his Budget speech for 2005-06, Mr Laloo had emphasised the need to bring in greater transparency in the financial reporting of the Railways and had stressed on the need for uniform accounting standards. Not much would seem to have been done in this direction. The Minister would need to appreciate that greater transparency alone would add credibility to his claims of profits, etc.

All said and done, nobody can dispute the passion with which Mr Laloo has gone about, doing his job, over the last five years. His claims that Indian Railways is one of the very few profit making railway establishments in the world are true, nonetheless. Of course, all credit to Laloo for using the catch word" profit", which is something nice to hear. His predecessors would have been content with dull words like 'surplus" and 'deficit".

I was very happy to see the enthusiasm and aggression that Mr Laloo displayed when he read out his speech. What used to be a dull exercise has now got a lot of color. It was Mr Laloo, Indian Railways" CEO who was presenting his organization"s annual results. I enjoyed every bit of it.

One great thing about Mr Laloo is that, he has not increased the burden on his consumers and has, on the other hand, been consistently reducing the fares while increasing the amenities and this, he has been doing for five long years. Mr Laloo doesn"t perhaps speak good English… he is not an economist or an academician, either. But, who can dispute that he has indeed been delivering, year after year. He has proved that good (or bad depending on which party you belong to) politics can indeed go with good economics.

Perhaps, a lesson or two here, for Mr Chidambaram, who is also poised to present his fifth consecutive Budget, which is expected to be populist?

Most importantly, will Mr PC emulate Laloo in terms of not increasing the burden on the tax payer and in ensuring that he doesn"t take away any benefit or exemption which the tax payer is already enjoying? So, will Mr PC combine good politics with good economics?

Wait for February 29.