The Indian Railways got “caught in the battle where populism prevailed over performance,” he says.

Finance Minister Arun Jaitley said rail passengers need to pay for services, outlining a vision for the Indian Railways, two months before he is set to present the Union Budget that will merge the rail budget for the first time in Indian history.

The Minister signalled that the Centre will resist populist measures, focus on improving the railway station infrastructure, monetise railway assets for commercial activities, outsource train hospitality and most importantly, make consumers pay for the services they receive. He said the Railways got “caught in the battle where populism prevailed over performance.”

“The first essential principle of running any establishment, particularly a commercial establishment, is that the consumer must pay for the services that they receive,” he said, while speaking at National Conference on Accounting Reforms in Indian Railways, organised jointly by the Confederation of Indian Industries (CII) and the Railway Ministry.

Power sector

The power sector companies ran into debt as consumers were not paying for services in 1990s until sector reforms came in 2003. The highways sector was booming because consumers paid through toll taxes or cess on fuel, he noted.

“Therefore, world over only those services have succeeded where the financial model is — consumers must pay for services they receive. We turned this whole theory upside down by self-imposed indiscipline that populism requires consumers do not pay for the services they receive,” he said.

At present, the Indian Railways recovered 57 per cent of the travel cost on passenger tickets. This meant if it spent Rs. 100 on a train journey, it recovered Rs. 57 from passengers and the rest went as subsidy.

Even though the Indian Railways had monopoly over the rail network in the country, it faced competition from alternative modes such as air and road. The pressure of maintaining highest standards to compete with the alternative modes of transportation had “started reflecting” on the railways’ earnings. “Normally, people don’t give up their turf so easily but because of this pressure, the railways is keen that the Finance Ministry takes over the Railway Budget itself because the burden of supplementing what is left behind becomes our problem,” he said.

Populist announcements

Mr. Jaitley pointed out that one of the challenges faced by the railways was that the budget did not focus on the railways’ key areas of expertise and there were populist announcements especially related to new train announcements. He said that the prime minister shifted the focus from announcing new trains to creating the railways “as a service organisation which is able to commercially sustain itself and provide world class services.”

Praising the “world class” facilities provided by some airports in the last one decade, Mr. Jaitley said there was no reason why railway stations “cannot really develop up to that level” with huge real estate in possession.

Outsourcing services

“The core competence of the railways is to drive trains, and hospitality may not be its core competence. Therefore, the principle of outsourcing, which is accepted world over, can be a logical addition to the activities of the railways in areas not within its core competence,” the Finance Minister said.