E. Editorials

Category: INFRASTRUCTURE

1. Railways and a question of transparency

Context:

• The article analyzes the concerns associated with the functioning of the Indian railways and suggests measures to improve its performance.

Concerns:

• The railways are in the midst of financial distress and are faced with fundamental organisational issues.

Depressed freight earnings:

• The freight earnings in 2020-21 though more than in 2019-20, would be lower than what was achieved in 2018-19. In fact, the passenger and freight earnings in 2019-20 were less than in 2018-19, indicating that a downslide had started even before the outbreak of COVID-19, probably due to the economic slowdown.

Operating Ratio:

• The Operating Ratio (OR), which is broadly the ratio of working expenses to revenues, has been artificially kept below 100% by making less-than-required provision for pension payments during 2019-20 and 2020-21. While the official figures of OR are 98.36% for 2019-20 and 96.96% for 2020-21, the actual OR works out to 114.19% and 131.49%, respectively, if the required provision is made for pension payments.
  • The Operating Ratio is an important financial performance index to measure the financial viability and sustainability of the Railways.
• The railway finances are in the red and the COVID-19 pandemic has nothing to do with it.

Increasing burden of staff costs and pension payments:

• A major challenge facing the Railways is the burgeoning staff costs including pension.
• Over the years, traffic revenues have been unable to keep pace with the increase in staff costs and pension payments. While the passenger and freight revenues increased by 84.8 % from 2010-11 to 2019-20, the staff and pension costs raced ahead at almost double that rate, by 157%, in the same period.
• While in 2010-11, the staff plus pension costs formed 55.7% of the traffic earnings, by 2019-20, they had shot up to 77.5% of the traffic earnings. This, despite the fact that there has been a reduction of about one lakh staff on the roll during this period.
• The spike in the staff and pension costs is largely attributable to the implementation of the Central Pay Commission recommendations. The Indian Railway’s finances are bound to be subjected to another fatal body blow by the next Pay Commission around 2025-26.

Skewed product mix of freight:

• A detailed analysis of the product mix of freight carried by the railways brings to light a major concern associated with railways.
• A disturbing feature of freight traffic is the overwhelming dependence on one commodity: coal. Despite all the marketing efforts over the years, almost 50% of freight earnings are contributed by the transport of coal.
• With the availability of alternative sources of renewable energy such as solar at competitive prices, the dependence on coal-based thermal power plants is bound to reduce to meet the incremental energy needs. Also, India’s commitment under the 2015 Paris Agreement would result in India reducing its dependency on coal-based power plants. This does not augur well for the Railways and it will have to therefore think seriously of life after coal.

Recommendations:

• The serious problems of viability facing the country’s largest and most crucial transport organisation should be addressed at the earliest. The following measures could act as a guiding post.
  • The railways should work towards achieving a quantum jump in revenues, particularly on the freight front, and a drastic reduction in the number of employees. The full commissioning of the two Dedicated Freight Corridors (DFCs), slated to be operational by 2022, assumes great urgency and importance as it would help boost revenues for the railways.
  • The railways should promote the adoption of the roll-on roll-off model of transporting loaded trucks on rail on the DFCs, which apart from boosting revenues has the added advantage of reducing the overall carbon footprint.
  • A suggestion to corporatize the Railways’ Production Units and to outsource the non-critical sectors like medical services needs to be looked into with discussions with all stakeholders.
  • An annual report called ‘Indian Railways Report’ on the lines of the annual Economic Survey should be placed in Parliament every year detailing the physical and financial performance of the Railways, identifying the challenges and plans for the future to meet the country’s rail transport needs. This would ensure detailed public scrutiny of the affairs of the railways.

Category: GOVERNANCE

1. Health first, fiscal prudence later

Context:

• Subsidised LPG prices have increased by a massive 50% in the given financial year.

Background:

Pradhan Mantri Ujjwala Yojana (PMUY):

• Pradhan Mantri Ujjwala Yojana (PMUY) was launched in 2016 to distribute LPG connections to women of Below Poverty Line (BPL) families. It provided an upfront connection subsidy of ₹1,600 for eligible beneficiaries.
• Since 2016, PMUY has provided LPG connections to 80 million poor households to reduce women’s drudgery and indoor air pollution.
• PMUY has helped expand LPG coverage to more than 85% of households, in comparison to less than a third of Indian households in 2011 who used LPG as their main cooking fuel.
• The government is offering 1 crore new connections under Ujjwala 2.0 in Financial Year 22.

Read more on Pradhan Mantri Ujjwala Yojana (PMUY) in the link.

Rising prices of LPG:

• India determines domestic LPG prices based on imported LPG price as India imports more than 50% of the total LPG consumption in India.
• As the pandemic set in, the LPG subsidised price began to rise, even when global LPG prices plummeted, due to higher tax rates which were contributing to the government finances.
• Currently, the LPG prices are rising globally and the government move to go in for a 50% reduction in the LPG subsidy budget for FY22 (versus FY21) will only further push LPG prices upwards.

Concerns:

• The rising LPG prices could have a detrimental impact on the substantial gains made under the Pradhan Mantri Ujjwala Yojana.

Further reduce affordability:

• Multiple studies assessing PMUY have concluded that while access has increased, many new beneficiaries are not consuming LPG in a sustained manner.
  • Large-scale primary surveys by the Council on Energy, Environment and Water (CEEW) suggest that, on average, recent PMUY beneficiaries consumed only about half the LPG compared to long-standing regular consumers.
• Limited uptake of LPG among poor households is due to the inability of the poor households to afford LPG, despite the subsidy.

Impact on public health:

• Limited uptake of LPG among poor households is also attributable to the easy availability of biomass in rural areas, making it difficult for LPG to displace it.
• The rising LPG prices may push more users towards biomass usage which does not augur well for the health of the users. Biomass is a major cause of indoor air pollution. Biomass use for cooking contributes up to 30% to the ambient PM2.5 at the national level.

Recommendations:

• The Central government will have to work towards balancing LPG subsidies and ensuring sustained clean fuel consumption in poorer households.

Better targeting of LPG subsidy:

• The government should work towards better targeting of LPG subsidy.
• Currently, the government provides a uniform subsidy per cylinder to all LPG consumers (PMUY or otherwise). The economically poor households need a greater subsidy to make it affordable for them to use LPG as their main cooking fuel.

Eliminating subsidy leakage:

• The de-duplication efforts to weed out households with multiple LPG connections must be accelerated to avoid subsidy leakages.

Conclusion:

• The continued support to the economically poor for sustaining LPG use is not merely a fiscal subsidy but also a social investment to free-up women’s productive time and reduce India’s public health burden.
• This social investment will yield rich dividends in the years ahead through a healthier and productive population.