Stopping the Gravy Train

Arun Jaitley (Right) and Suresh Prabhu
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Combining the Rail and Union Budgets is sound financial logic

COME NEXT YEAR and there won’t be a separate Railway Budget. After 92 years, there will be no distinct annual statement of accounts for one of the biggest employers in India. It was a step that should have been taken a long time ago.

The original rationale for a separate Railway Budget had some traction at a time when rail expenditures were very large and in the same league as those of the Union Budget. During the colonial period, the Indian Railways would issue bonds in London to raise funds. The complexity of its finances merited separate treatment.

This situation changed dramatically after Independence. The Indian economy became inward looking and lost most of its global financial links over time. The Railway Budget began to be financed by government money, and soon enough, the populist tendencies that marked policy making elsewhere crept into the Railways as well. The endless trains to nowhere under a succession of railway ministers—who were almost always populist—sapped the financial vitality of this important national asset.

Apart from its financial logic, presenting railway finances along with the Union Budget may have a salutary effect on the way decisions are made. The current Railway Minister is known to eschew populism. But under some other dispensation, temptations to spend money based on considerations other than developmental merit may arise again, with new politically-motivated services announced and fares held low as a sop to passenger vote banks. Under the Finance Ministry’s gaze, all railway expenditure of the future will need proper justification.

Within a day of the announcement, there have been reactions with some claiming that the Railways will lose its ‘autonomy’. But this is a canard. If loss of autonomy means an end to populism, that is probably what the Government had in mind. But if loss of autonomy means decisions of the Ministry being taken elsewhere, then nothing could be further from the truth.

These are still early days and the new system has not been put in place. The Government has two more budgets to present. It will do a great service to the country if railway finances are streamlined and its expenditures subjected to technocratic criteria.