Weeks before he presents India’s first combined general and railway budget, Finance Minister Arun Jaitley on Tuesday made a strong case for outsourcing of non-core functions like hospitality services of Indian Railways and pressed for a transparent accounting system. He said that unless the railways strengthen its performance and internal management system, they will lose out to competition from other sectors like highways and airlines in both passenger and cargo transportation.
“The core competence of railways is really to drive trains, to provide those services. Hospitality may not be the core competence of the railways and therefore, what is not within its core competence, the principle of outsourcing — which is accepted world over — can be a logical addition to those activities of railways,” Jaitley said.
As Railways plan to shift towards accrual system of accounting from cash system, Jaitley said the accounting reform will better reflect performance.
“Your accounting systems really must reveal more instead of concealing the reality. What is the kind of investment in infrastructure that is coming in, what is the kind of investment in railway safety, what is the kind of outcome of outlay that you have planned, I think those accounts must really reflect the reality,” he said.
The government had in September scrapped the 92-year old practice of presenting a separate railway budget and decided to present a combined general and railway budget for 2017-18 on 1 February, 2017.
Speaking at a conference on Accounting Reforms in Railways organised by CII, Jaitley said that year after year, the governments have indulged in populism and people listened to Rail budget only to hear the number of new trains being announced.
“I’m glad that over the last two years, railways have resisted the temptation of going off-track and falling back to the same level of search of populism over performance and is concentrating on improving its quality,” he said.
Jaitley said that for years the success of Railways was measured by subsidising consumers and making populist announcements regarding trains.
“Railways got caught in a battle where populism prevailed over performance and the basic principle on which any commercial establishment is to be run, the first essential principle is that consumers must pay for the services that they receive,” he said.
He said that power companies were not doing well till the 2003 power reforms came and the highways sector was successful through toll mechanism or cess on fuel that consumers were paying for using the highways.
“Worldover, only those services have succeeded where there is a financial model and the financial model is that the consumers pay for what they receive. We turned this whole theory upside down by a self imposed indiscipline that populism requires that I require that consumers not to pay for service that they receive. Therefore, any establishment will start crumbling under its own weight and contradictions,” he said.
Jaitley said that today, even though there is no competition within the Railways yet they have to compete with alternate modes of transportation.
He said the Highways sector, which has developed in the last 15 years, is giving railways a real run for money and in terms of passenger traffic now with airline network, even for travel purposes railways will face a big competition.
“Therefore, unless both in performance as also in internal management, you are not able to maintain the highest of standards, the dangers of losing out to competition will always be there,” he said.
Jaitley said railways have been fighting the competition and the stress is showing in their finances.
He said airports have become more developed than most developed countries in the world.
“Logically, there is no difference in the functioning or requirements of airports or railway station. Therefore, with the kind of real estate and land in their possession, there is no reason why railways cannot develop to that level,” he added.