Analysis: Bansal’s Railway Budget Falls Between Two Stools

If the Congress party got hold of the Railway Ministry after 17 years, its nominee Pawan Kumar Bansal did not do enough justice to the opportunity. In fact, it would be fair to say that the Congress half-fumbled its chance, with one eye on sensible economics, and another on good politics.

In the process, Railway Budget 2013-14 has fallen between two stools. The budget is neither economically bold, nor does it do enough to tilt popular perceptions about the Congress party.

The plus point of the budget is the absence of a general pandering to populism – a hallmark of budgets ever since Lalu Yadav got into the engine in 2004 – but the right diagnosis failed to bring forth the right corrective action.

Bansal made all the right noises in the beginning about how passengers were being hugely subsidised by freight earnings, with the losses on passenger traffic totaling Rs 24,600 crore in 2012-13. But all he proposed as a remedy was some increases in reservation charges for superfast trains and tatkal tickets.

The burden of carrying the railways forward fell again on freight traffic once more, where rates will rise around 5 percent on an average, levied through a fuel adjustment charge (FAC).

Given the huge investments needed for modernisation, track safety and creating fresh capacity for freight and passenger traffic, Bansal’s budget failed to raise enough resources for growth.

On the other hand, he may have been a trifle optimistic in his projections. Given that the economy is not scheduled to grow by more than 5-6 percent in 2013-14 even on the most optimistic forecasts, Bansal has still assumed a 9 percent increase in freight traffic (1,047 million tonnes of originating traffic) to earn Rs 93,554 crore. Passengers are supposed to bring in an additional Rs 42,210 crore – an even more unbelievable figure given that this is nearly 30 percent higher than the projected figures for 2012-13.

Quite obviously, Bansal expects revenue increases to come in largely from freight and the January increase in passenger fares.

The only area where the ministry’s return to the Congress fold has borne fruit is in the negative direction: Bansal seems to have wangled a lower dividend payout obligation from the finance minister. The railways now have to pay only 4 percent dividend to the general exchequer, down 1 percent from the earlier figure, and lower than the minimum earlier requirement of 6 percent. The railways are clearly becoming less and less of a commercial organisation, despite the change in freight and fares in 2012-13 and this year.

An interesting emphasis shift, though not very pronounced, is the belated recognition that rail travel is no more about mere basics. Increasing incomes have made more people part of the aspiring classes.

In 2004 and 2009, the Congress party saw the rural aam aadmi as its natural constituency. But as the Anna Hazare and Delhi gangrape protests shows, the middle class is increasingly getting assertive.

This is why Bansal’s budget made references to providing wifi services on some trains, the launch of Anubhuti luxury coaches, and an improved online ticketing experience. If the earlier focus of rail budgets was on keeping second class fares as low as possible, this time the emphasis is less on fares and more on amenities. This will make rail travel better, since people have moved on from just basic facilities. They want a better experience, beyond cattle class.

But, unfortunately, since Bansal failed to raise passenger fares, he could not really walk the talk on wooing the khas aadmi, at a time when the new middle classes that may be looking for a clearer articulation of their travel demands.

The only big change that Bansal made was a shift to automatic increases in freight charges based on fuel prices. But even here, he has pulled his punches, by temporarily leaving passenger fares out of the fuel adjustment charge (FAC). That, presumably, will happen only after the next general elections.

Clearly, Bansal took a leaf out of Dinesh Trivedi’s budget speech last year but applied it to freight, not fares. Trivedi had said then: “I wish to share with the august House that I am contemplating a system of segregating fuel component in the cost associated with passenger services and call it FAC (fuel adjustment component). The FAC will be dynamic in nature and will change in either direction with the change of fuel cost. I must also be forthright and take the House into confidence in mentioning that in the event of any further increase in input costs of railways, it will not be possible for us to keep the passengers  cushioned from the impact of such increases.”

In short, Bansal has not applied FAC where it should, and instead stuck it to freight, where the consequences are inflationary, and where political resistance is lower. He has taken the easy way out.

Bansal could have done more, but he hasn’t due to electoral considerations.

If Bansal’s performance is any pointer to Congress party thinking on the main budget, it would mean this: expect no major fireworks or big-bang changes to upset the electorate.

Good economics cannot be avoided, but populism cannot be lost sight of. The markets may have nothing to drool over on 28 February.