Changing tracks

Investment in Indian Railways must be backed by reforms

The Union Budget for 2023-24, presented by Union Finance Minister Nirmala Sitharaman in Parliament on Wednesday, saw a significant increase in the amount of public funds set aside for capital expenditure. As Ms Sitharaman pointed out, this was the third successive Budget with a major scale-up in government capital expenditure. Of the Rs 10 trillion set aside for this, more than half will go to the transport sector. And around half of that — about Rs 2.4 trillion — will go to the Indian Railways in particular, taking its capital expenditure to Rs 2.6 trillion for the year. The government is to be commended for its sustained emphasis on infrastructure spending in its Budgets and by correctly identifying the problem of under-investment that has plagued many of India’s core infrastructure sectors, especially transport.

The Indian Railways, the workhorse of connectivity in the country and the backbone of its industrial economy, has been a particular target for under-investment and thus it is excellent news that this trend has reversed. There are multiple ways in which this money could be used within the railways. The Budget numbers indicate, for example, that Rs 30,000 crore has been set aside for the doubling of tracks, and that was less than Rs 9,000 crore in 2021-22. Further, Rs 32,000 crore is to be spent on new tracks, and that is about a 50 per cent increase from two years ago. Almost Rs 40,000 crore is to go into rolling stock, which received just Rs 8,000 crore in last year’s Budget. And Rs 8,000 crore has been earmarked specifically for electrification.
 

These are big numbers, and reasonable questions can be asked about the railways’ absorption and implementation capacity over the next year for this expanded capital budget. There are, however, even longer-term questions that must be asked. While capital investment in the railways is overdue, it must be accompanied with a plan that makes such ongoing capex financially sustainable. This cannot be a one-time effort, but equally this level of support from the Union Budget cannot always be expected, given that the government will need to consolidate its overall fiscal position in the coming years. Therefore, work must begin now on understanding how to make the railways earn enough to generate meaningful surpluses to invest in its own improvements. This will require tariff reform, and the end to the massive cross-subsidisation through freight costs of passenger travel. The latter must, in effect, be made sustainable if not profitable in order to ensure that any returns from freight service can be ploughed back into system management and improvements.

Naturally this will not easily happen under the current system of management. Therefore, alongside financial reform, administrative reform and greater independence from political control must also be a priority. The government’s focus on infrastructure and the railways in particular is valuable and should be welcomed, but it cannot stop merely at budgetary allocation. Reforming processes and creating independent centres of power that have the ability and authority to set tariffs are a necessary additional step if the current vast investment in the network is to pay off over time and not be wasted.