Bad Politics Means Bad Economics

Economic Times, March 26, 2012

By Pradeep S Mehta

Sacking the then-railway minister Dinesh Trivedi after he presented a reformist rail budget is one of the darkest chapters in our recent chaotic economic history. One can understand the compulsions of coalition politics.

Just like Trivedi, former minister Suresh Prabhu was removed from his portfolio in the government led by former Prime Minister Atal Bihari Vajpayee. His party supremo, Balasaheb Thackeray, had him dropped not for raising prices of urea, but for other reasons.

Agreed, Trivedi’s case was different, though it may take a while to know the precise reasons for his ouster. Now, his successor Mukul Roy has announced a rollback in passenger fares, in spite of the Cabinet decision to support Trivedi’s proposal to raise fares.

This idea was not radical because fares had not been raised over the last decade. After all, bad politics leads to bad economic outcomes, which the country can ill-afford in the current situation of an alarming fiscal deficit, obstinate inflation and unusual policy paralysis.

The argument that Trivedi raised passenger fares and that would adversely affect the poor is a specious one. As if railway fares are the only burden on the poor. If one compares it with rise in road transport costs during the same period, then the suggested increase is far lower.

He rightly argued that railway finances need to be buttressed because transport is a vital component for the overall economy. In their wisdom, even the railway workers unions supported him. If passenger fares are not raised, then freight rates will have to cover the gap, and the spiralling impact will lead to higher burden on the poor.

In fact, Trivedi raised the freight rate on goods including some essential commodities before he presented the budget. The increase would certainly impact the poor. If safety parameters are not to be improved, then again, it is the poor who will suffer the most.

People who are well-off usually use airlines to travel long distances or SUVs and cars or roadways buses to travel short-to-middle distances by road, and not Railways. In spite of the tatkal scheme, many still have to fork out extra money to get a confirmed seat.

Trivedi had also proposed a process to establish an independent tariff regulatory authority. This is an important reform measure that is overdue. Unfortunately, Roy has dropped this idea. What Trivedi also said in his budget speech was to establish an independent railway safety authority, among others, such as one to focus on unmanned railway crossings.

But both the functions can be promoted through the existing independent Commission on Railway Safety that works under the ministry of civil aviation at an arm’s length. Surely, the commission does not suffer from the Air India syndrome.

If it is not functioning well, then it should be suitably strengthened. This is a better option than the irrational proposal to set up more bodies that would increase the cost burden. He praised the procurement system in a tongue-in-cheek manner and then said that eprocurement and e-auction systems will be used to curb huge leakages in the system. The losses are estimated in the region of Rs 6,000-10,000 crore. This is much more than Rs 4,000 crore the rollback in passenger fares would entail.

Hopefully, Roy will address this crucial issue. In the meanwhile, power rates in Bengal have been raised, along with those of powdered milk, while there is a proposal to raise tram fares too. All these will affect the poor adversely. Therefore, one cannot understand the brouhaha over raise in railway passenger fares.

Perhaps, there is more to the whole fiasco than what meets the eye. In conclusion, we have two points to ponder: why do we have a separate railways budget at all, when the railways are dependent upon the national kitty for financial support.

A separate rail budget is a legacy of the British Raj. Given the same logic, should we not have a separate defence budget that is critical for the country’s security, whose annual expenditure is in the region of Rs 1,93,400 crore, while the railways budget is only around Rs 60,000 crore?

Granted, the defence budget is mainly expenditure with some scarce income generation, while the Railways has to function like a commercial enterprise, with social obligations.

A proposal to merge the railway budget with the Union Budget was mooted in the recent past by finance ministry mandarins, but the proposal was dropped after the news was leaked. The reason: status quoism and coalition politics. Railways, like any infrastructure ministry, has always been the fiefdom of a smaller partner, so that they can get a slice of the cake.

Coalition politics is now an established way for future governments at the Centre, and perhaps in few states. Hence, succumbing to arm-twisting by smaller partners will always remain. Should we not create a structure whereby the government never gets unstable, like the German system where a noconfidence motion has to be accompanied by a confidence motion in favour of another ruling alliance?

There, parties on the opposite sides have formed a government and ensured stability. This will at least ensure a full term for all MPs and hedge the central government from being blackmailed by smaller parties, to a large extent. Horse trading for forming a government will not disappear but there would be better stability.

The author is secretary general, CUTS International.

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