Railway budget : post merger challenges; a new policy paradigm for infrastructure for this century

Abstract

Railway budget spilt from general budget in 1925 and merged with general budget in 2017. Separation convention and merger with general budget though seem two extremes, but have one common philosophy: both have the goal of making capital investment and operating ratio of railways robust. The Separation convention has served this goal well over last 90 years and now the merger has to be fashioned in terms of present reality. We may be judged after about 25 to 50 years from now, by our policy choices. Public Finance has always, in all regimes over the history of our civilisation, faced the challenge of raising resources. While the staple method remains taxes, the dilemma that has dodged public authorities worldwide is the regressive nature of indirect taxes and tax evasion for the so-called progressive direct taxes. In this scenario, non-tax receipts are the best ideal for governments to pursue as these are non-invasive and based on the willingness to pay of the user. Here also the non-tax receipts pose choices. Hitherto, dividends from PSU shave been the main chunk of non-tax receipts but then the production efficiency is much better with non-government firms. The choice for non-tax receipts now centres on auction of natural resources, economics of externalities, market correction and signals like information symmetry, and provision of public goods. Out of all, probably, public goods offer the best option and in this, transport and infrastructure logistics like railway have a great potential. This policy paper discusses the current grim challenges facing railways and tries to make out a policy argument (it will too presumptuous to think that this paper presents a whole policy paradigm).The merger presents Railways to take its specialisation in budget under the separation convention over more than 90 years. The Government (classic political economy and administrative tension between elected representatives and a status-quoist recalcitrant but meritorious bureaucracy) and the economy have matured and it is now appreciated that each sector has a specialised budget exercise instead of imposing on all the universality of secretariat budget . At every para, I have paused and thought about the aspect whether the argument being made is implementable and how effective could it be from immediate to a decade perspective. I have believed that policy is an instrument that is as effective as its implementation effectiveness. The policy framework proposed here is based on only one target against which all policy and strategies in transport and infrastructure can be made i.e. of achieving a target of less than 9% of logistics cost to GDP in a period of5 to 10 years. This obviously requires a terse method to calculate and monitor the denominator and numerator of the parameter relative to the numerator and denominator of the GDP. However, it would be erroneous to use this touchstone in a fragmented way over different modes like road or railways. Rather, every time it is applied, in every decision or sanction, it has to be seen if there is a better alternative to the economy. Railways in this paper have been taken a global commons and a local commons. This has deep layers of meaning and not merely something related to climate change and other talks on global commons. If peace is a global commons arguably railways is best carrier connecting communities and land masses. Railways here are distinct from a private good. This concept of railways as a commons gives a policy clue that railways has to tap the economics of externality like pigovian tax choices and leveraging on that; like tapping the strong positive correlation between railway and property prices, large multiplier effect on the economy, to name a few. The three sub-policy strategies proposed here are for: (i) inefficient subsidy,(ii) capital under investment and (iii) inefficient budgetary allocations. Public policy, at least in India, is often a bit wary of theoretical leverage. There has existed a fault line between academia and applied sciences and humanities and the bureaucracy and public policy makers. There are a few notable exceptions, like green revolution to name only one, but by and large in the government working there is a clear fault line and one is decried over the other. In this paper, I have gone through and proposed four string theoretical framework for policy strategies. The theoretical framework offers a huge opportunity for policy labs a concept that is rare in Indian policy deliberations. We have to appreciate that the policy environment is essentially empirical and so policy labs offers the best opportunity to implement and scale up or design our policy strategies. Theoretical frameworks here offer the finest analytical tools for prediction, review and course corrections, so essential to an effective policy making.