The status paper, presented by railway minister Nitish Kumar in the Lok Sabha on Wednesday, has also hinted at the need for a phased increase in passenger fares to ease freight rates. Expressing concern over the massive cross-subsidisation of passenger fares by freight services aggregating to Rs 2,800 crore during 1997-98, the strategy paper has suggested a phased reduction of the cross-subsidy from freight.

Underscoring the need for greater help from the central government, the paper stresses that the railways would have to double their investment from the level of Rs 33,000 crore in the Eighth Plan to Rs 85,000 crore in the Ninth Plan to retain the present share in transport.

Noting that this has to be done against thebackdrop of many odds, including declining capital support from the general exchequer, which has plummetted from 75 per cent in the Fifth Plan to 23 per cent in the Eighth Plan and a policy of restraint in increasing fare and freight rates, as is evident from input costs going up by 16 times as against freight and passenger fare increases of only 10 and seven times only, the paper says there are only two options before the Railways.

It suggests either continuing at the existing growth rates and risk losing the market share further or operationalising a strategy to launch the network into a higher-growth trajectory and become part of the renaissance of the rail industry globally. The latter option, it says, can be pursued only with the support of the central government.

The paper seeks power on low tariffs for electric traction which the Railway Board officials later said, at a briefing, was being supplied to the railways at an exorbitant rate of three times the generation cost despite prompt payment bythe railways. To boost private sector participation, the paper suggests that incentives recommended by the Rakesh Mohan committee be extended to the railway sector also and customs and excise duties concessions be granted to railway stores and equipment on a case-to-case basis.

It also demands that facilities like inland container depots (ICDs), set up by Concor, be treated at par with ports and given benefits under the Income Tax Act. The paper also seeks government approval for commercial exploitation of railway land and air space to upgrade passenger and freight terminals as also a supplementary source of funding for railway development.

The paper suggests the creation of a rail infrastructure development fund for rail over- and road under- bridges through one per cent ad valorem levy on purchase price of road vehicles.

It seeks compensation for public service obligations, like running unremunerative passenger and commuter services and carrying essential commodities at subsidised rates, currentlycosting Rs 1,800 crore for commercially unviable but socially relevant projects, the paper suggests funding through outright grants without dividend liability for execution and operation of such projects.

It also suggests a separate corporation or agency for such projects to be supported by necessary subsidies or grants from the general exchequer.

Additional inflow of subsidised loans from the general exchequer to the extent of at least 35 per cent from the present 23 per cent is extremely necessary, the paper stresses. As far as generation of internal resources is concerned, the paper says it has been seriously affected by the fact that staff costs have been close to 50 per cent of the working expenses. The position was aggravated by Fifth Pay Commission recommendations and as per Interim Budget account for 56 per cent of the total working expenses. Unless overall cost of borrowed capital from the general exchequer and market borrowings is kept within the profitability level achievable by any coresector, this route would send the network into a debt trap. "The lesson of history is that fiscal and other mechanisms have to be developed to stimulate the flow of private capital into the rail sector without correspondingly generating the intolerable burden of market interest rates and unmanageable debt traps," it warns.

INSIGHT -- Wagon hitched to central budget

The points made by the status paper are unexceptionable. But it will be difficult for a coalition government to take a hard decision on increasing passenger fares. Compensation for pubic service obligations is a must. The question is, how far can a resource-strapped government go?

A key issue made by the paper is government funding of railways. The decline in the centre's contribution to the railways' capital expenditure must be reversed if railway expansion is to be consistent with GDP growth. The problem is that the central budget does not have much manoeuvrability.