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Corporate Mar 9, 2012

Why Trivedi should tear up his rail budget speech of 14 March

By R Jagannathan

Railway Minister Dinesh Trivedi has just demonstrated why the practice of presenting a railway budget every year before the general budget should be scrapped. In fact, there is a good case for abolishing the ministry itself.

On Tuesday, Trivedi raised freight rates by 20-25 percent by the stroke of a pen. He clearly proved that when it comes to commercial decisions, you don't need to make a mother-of-all-populist speech in Parliament to do so. A Bollywood movie may need a heroine to sing a song before committing suicide, but the railway minister can do without a long dirge.

On TuesdayDinesh Trivedi raised freight rates by 20-25 percent by the stroke of a pen. Picture:PIB

Of course, Trivedi made the wrong decision- he chose to raise freight rates when cargo movement is sluggish, instead of passenger fares, which have not been raised for eight years, leaving the railways bleeding profusely on this count.

A few days ago, MPs in the parliamentary consultative committee attached to the railway ministry said fares should be raised. According to one MP who attended a recent meeting of the committee, "the railways should rationalise passenger fares which have not been raised since 2003," reports The Economic Times.

Two different committees - one headed by Anil Kakodkar and another by Sam Pitroda - have recommended a backdoor increase in fares without calling it one. While Kakodkar said the railways should levy a "safety cess" to improve the track system and improve the railways' safety record, Pitroda called for a "modernisation surcharge" on rail fares. The panel says the railways need to generate over Rs 2,00,000 crore over the next five years to part-fund a massive upgradation of the network, The Indian Express reports.

Since both committees seem to avoid the 'F' word - fares - it is obvious that there is political squeamishness in taking the bull by the horns and do the simple thing: raise revenues by hiking grossly subsidised passenger fares.

In fact, if Trivedi is not planning to do this, there is even less justification to make a grand speech on 14 March while presenting the rail budget. He should tear up his speech and not waste everybody's time.

However, there is a larger reason why Trivedi should dump his speech. And it's not about whether he has anything to say about fares and freight (he has already done the damage with the latter).

The key issue is the railways' commercial decision-making autonomy and ability to respond to marketplace realities. Should the railways restrict commercial decisions to once-in-a-year budget speeches or more frequently, depending on market trends?

If, for example, diesel prices are deregulated next month, you can't wait till the next budget in February 2013 to make the fare adjustments. You do it when it is warranted. If fewer people are sending cargo by rail, maybe you need to offer discounts to shippers. A commercial organisation needs to compete and respond to market conditions quickly, not wait for speeches to be made.

This means freight and fares must reflect the organisation's assessment of market conditions and profitability, not the political need to play to the gallery of public opinion.

The problem with the Indian Railways is that it has stuck to a historical error - made during British times - of treating the organisation as some kind of political creature when it is really a company.

Given the railways' importance to the British to maintain law and order in a huge country, it did indeed have a political role in the past.

But now? The Indian Railways is really the Indian Railways Corporation, and it should be run like a company, with its own independent board.

Hasn't the time come to break the umbilical cord between this overgrown political baby and the government? Isn't it time to make the railways India's largest commercial enterprise and biggest employer?

Indian Railways needs a CEO to run it, not a minister. A minister's job is to make policy, not run trains and fix fares.

Mr Trivedi, there's still time to tear up that 14 March speech.

by R Jagannathan

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