Bibek Debroy stresses on shift of commercial accounting by Railways

Ideally, freight rates should have been adjusted downwards, says Dr. Debroy

New Delhi, Feb 26 (KNN) Dr. Bibek Debroy, renowned economist, Member NITI Aayog and Chairman of the Government panel for restructuring the railways, has mentioned that  in the absence of proper commercial accounting principles, the actual performance of Railways may not be known.

Commenting on the Railways Budget 2016 on the NITI Aayog portal, Debroy mentioned that in the absence of proper commercial accounting principles, operating ratio (OR), ostensibly a surrogate measure of what the Railways net earnings are, can only be guessed.

The OR is expected to be 90% and in 2016-17, it is expected to be 92%. Both numbers are better than what was feared. However, the OR is really derived as a residual, since one can inadequately provide for depreciation and safety, he mentions.

Focusing to the gradual erosion in the Railway share of freight transport Member, NITI Aayog mentioned that it is because of the cross-subsidization done of passenger losses through freight revenue. As a rough indicator, for every passenger train the Railways run, half a goods train needs to be run to compensate for the losses.

Ideally, given the loss in share to road transport, compounded by an improvement in the road sector, freight rates should have been adjusted downwards, Dr. Debroy comments.

“The headline-grabbing point about no new trains and no fare increases is a myopic way of looking at the Budget. There are two ways to look at the Budget. The first is to look at the numbers in 2015-16 and how the projections went wrong, thereby adding credibility to the projections for 2016-17”.

“Of course, the numbers are bad. Paragraph 3 of the budget speech sets out three reasons for this – growth slowdown, Pay Commission impact and declining modal share of Railways. One can’t disagree with this diagnosis. The question is, what does one do about it?” asks the eminent economist.

Even if economic growth in 2016-17 is better than in 2015-16, that doesn’t necessarily translate into more revenue for the Railways, mentions Prof. Debroy. Passenger transport is a losing proposition. Railways make money through freight  but over the year loosing its share in freight traffic due to uncompetitive freight rates.

Stressing the need for a regulator for the Railways, member NITI Aayog mentions that while the Budget Speech mentions the Rail Development Authority as a regulator, ideally, to ensure independence, it should be set up statutorily.

It is perfectly possible for tariffs to be changed once the Authority is set up. Indeed, changes in tariffs do not require the Railway Minister to go to Parliament. Therefore, if the projections do not materialize, as is quite likely, it is entirely possible for tariffs to be changed in the course of the year. (KNN/ DB)