The railway budget presented on Wednesday, hailed by Prime Minister Manmohan Singh and finance minister Pranab Mukherjee as reformist and progressive—it raised rates, the first for a rail budget in almost a decade— seems to have put the government in a familiar place (a mess) in an unfamiliar way (the problem wasn’t of its own making).
If the attempt was to strike a reformist note ahead of the main event, Friday’s presentation of the Union budget, then the result was to highlight structural flaws that have repeatedly threatened to split the ruling coalition, the United Progressive Alliance (UPA), and stoke fears about its ability to stay the course till 2014.
Indeed, the railway budget presented by Dinesh Trivedi broke new ground for an event usually characterized by announcements regarding new trains and locomotive factories —it was opposed by his own party, the Trinamool Congress (TMC). Late on Wednesday, PTI quoted party leader Mamata Banerjee as saying that she has sent a letter to Singh asking him to sack Trivedi and replace him with minister of state for shipping Mukul Roy.
Trivedi made all the right noises in his budget speech. He stressed on research, emphasized safety, spoke of better finances and even announced the creation of a committee headed by the government’s favourite go-to technocrat, Sam Pitroda. But it was his announcement on the fare hike that got everyone’s attention.
Minutes after Trivedi presented his “reform-oriented” budget, his colleagues from the TMC, which enjoys an uneasy relationship with the Congress, publicly raised objections to an increase in passenger fares for the first time in the last nine years, and demanded a reversal in the decision.
Trivedi maintained that the budget was prepared keeping the interests of the railways and the country in mind and justified the increase. By late evening, his leader, the charismatic and mercurial Banerjee, the chief minister of West Bengal, had gotten into the act. The rates wouldn’t go up, she confidently told the audience at a rally in Nandigram.
News channels had reported that TMC lawmakers would protest outside Parliament and meet Singh demanding a rollback on Thursday. They were earlier scheduled to protest on Friday, ahead of the presentation of the Union budget, demanding a financial package for West Bengal. Banerjee also wants a three-year moratorium on interest payments on loans to the state.
Trivedi has proposed raising passenger fares by 10-40% across the board. According to him, these hikes will ensure that the railways earns Rs.36,073 crore in the next fiscal, an
increase of nearly 28% over the revenue earned in 2011-12.
There’s no arguing that the money will come in useful for a government department that finds itself in perhaps the worst financial crisis in the last several years.
“Railways would come to a grinding halt if it is not done. I have pulled it out of the ICU (intensive-care unit). You can’t have everything,” he told journalists after the presentation of the budget.
Indian Railways’ precarious financial position is evident in its operating ratio—the amount spent for every rupee earned— which has risen sharply to 95% against a projected target of 91.1%. Last year, the figure stood at 92.1%.
Railway financial commissioner Vijaya Kanth admitted that the operating ratio would have been significantly higher but for Rs.3,000 crore loaned to the railways by the finance ministry
in 2011. But for this loan, the department would have registered a shortfall in excess of Rs.
“No system can function without having adequate funds. As things were, we would have not been able to balance our budget perhaps in the current financial year, had the minister not taken these very, very bold decisions and put the railways back on the track of financial viability,” said Vinay Mittal, chairman of the Railway Board, Indian Railways’ apex management body.
Mittal said the fare hike would fund not only developmental activities, but also part of routine operational expenditure, which is likely to be in the range of Rs.84,000-85,000 crore
It remains to be seen whether the department gets the money.
The railway budget has to be passed by both the Lok Sabha, where the UPA has a wafer-thin majority (counting the TMC), and the Rajya Sabha, where it is in a minority. However, since it is a so-called appropriation legislation, only the Lok Sabha can make changes in it; the passage of such Bills by the Rajya Sabha is usually a formality. Both the main opposition, the Bharatiya Janata Party and the Left parties criticized the proposed increase in fares, saying that it would add to inflation.
Banerjee’s opposition to foreign investment in retail chains and the creation of an anti-terror body, the National Counter Terrorism Centre, have already triggered tensions within the UPA. This, coupled with the victories of regional parties in the just-concluded assembly elections, has intensified speculation over a possible reorganization of regional parties and the formation of an alternative coalition, the so-called Third Front, fuelling speculations about a mid-term poll.
Subrata Mukherjee, a Delhi-based political analyst, pointed out that the impact of the announcement on the fare increase reflects the “incapacity of the Indian government to take hard decisions”. He said: “The government has not been able to create an atmosphere to take hard decisions with popular support and a political consensus. We work in an adversarial democracy.”
Trivedi, a Lok Sabha member of the TMC, argued that he had to increase revenue to take care of the safety aspects and provide better services. “I had two very clear, yet contrasting options— either to keep the railways in status quo mode with just incremental annual changes or, as the phrase goes, ‘bite the bullet’. The second option would involve going for a generational change with a focus on safety and inclusive growth to meet the aspirations of this great country in the next decade. I chose generational change.”
Trivedi appeared unfazed by his party’s criticism of his move, although the buzz in Delhi’s political circles is that he will have no option but to resign. Indeed, the fallout engendered several conspiracy theories. One claimed the whole thing had been orchestrated by the TMC, with Banerjee riding in to rescue the common man from higher fares.
Two TMC leaders, who spoke on condition of anonymity, said the fare increase had come as a surprise to Banerjee and the party, and said Trivedi “may be exploring prospects of political life outside the Trinamool Congress”.
The TMC’s actions could end up hurting it, said Sandeep Shastri, pro vice-chancellor of Jain University and director of International Academy for Creative Teaching at Bangalore. “People have been watching the contradictions and the pressure-building methods of the allies… It is difficult to convince the public that you are not aware of the budget initiatives taken by a minister belonging to your party,” he said.
And it would definitely affect the image of the UPA too, Jain added.