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The near-universal encomium that greeted the Railway budget for 2008-09 is understandable. It has something for everybody; with greater emphasis on amenities and modernisation, safety and welfare measures, it is designed to make rail travel a more pleasurable experience.

And, from the common man’s point of view, an across-the-board cut in fares is welcome while selective reduction in freight tariff will endear this budget to industry. For the fifth year in a row, the “Lalu” magic is at work.

Nor any major resource mop-up was expected, more so because elections are round the corner in many states during the course of the next fiscal year, climaxing in the general elections in early 2009-10.

Moreover, if the Railways can manage to notch up a sizable surplus year after year, the case for any increase in fares and freight rates is unlikely to cut much ice with the masses. In the circumstances, a populist budget was expected and the Railway minister did not let us down.

There could also be another angle to this soft approach. The economy is doing well, in terms of growth rates. This, in itself, generates demand for the services rendered by this premier network.

Railways, being the preferred mode of transport for the people and for the movement of goods, may not be inclined to do anything that has the effect of weaning the people to other modes of travel or for road transport to make further inroads into its freight traffic-which also is its mainstay from the revenue point of view. Thus, from an economic angle too, status quo was very much desirable.

But, still troubling questions arise. The net revenue of the Railways is budgeted lower at Rs 16,423 crore in 2008-09. In his speech, Lalu Prasad Yadav admitted that he has made a provision of Rs 5,000 crore to meet the burden that may be imposed by the recommendations of the Sixth Pay Commission.

Despite the buoyancy in freight and passenger earnings, ordinary working expenses of the Railways are expected to increase at a faster rate.

As such, operating ratio - the ratio of working expenses to gross traffic receipts - is set to climb steeply in the next fiscal to 81.4% from this year’s estimated 76.3%.

Logically, therefore, it would have been prudent to augment the earnings of the Railways to ensure that operating ratio does not come under pressure. A mild dose of fare and freight hikes would have been more prudent rather than deliberately plan for a let-up in net earnings, especially when a hump in expenditure can be foreseen and other imponderables loom large.

It is also necessary to view the improvement in the operating ratio and the comfortable position in regard to net revenue in a correct perspective.

In his speech, the minister made much of the fact that the Railways are now faring well in regard to return on capital invested in them from the general revenues. “ ..in the glorious history of the Railways in independent India, it is the first occasion when the return on capital invested in Railways will reach the historic level of 21%,” he asserted.

But, this has much to do with the change the accounting policies effected by the Railways in 2006-07. One such change was the inclusion of the interest portion of leased charges under ordinary expenses and the principal portion under plan expenditure.

The new accounting norms affect the calculation of the surplus and the operating ratio and present a radically different picture as compared to the earlier practices in regard to both. The data for 2005-06 as budgeted under old norms and the new norms bring this out clearly:
Operating Net as % of
ratio revenue capital-at-large
2005-06(B) 90.8 9.1
2005-06(actual) 83.2 15.4

So, for a valid comparison, the time frame has to commence only after Lalu Prasad took over the reins of the ministry. Though, in this respect, he had been quite successful in 2006-07 and 2007-08. But, in the ensuing fiscal, he has budgeted for a worsening of the operating ratio, at the projected 81.4% as well as for lower net revenue earnings.

The surplus too is pegged at Rs 11,787 crore as compared to the revised figure of Rs 13,534 crore this year. With a modicum of effort, this anticipated setback could have been averted. In this sense, a measure of misgivings is in order. So, only two cheers for a budget that is otherwise far-reaching in scope, content and thrust.