Prabhunovation seeks turnaround in railways

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Dear Mr. Sagar Please see my article written jointly with Geetima Das Krishna titled 'The Myth of Revenue Foregone..' which appeared in Mint newspaper on 26 February. Your feedback is as always welcome. Best/warm regards Rajiv Kumar
The myth of foregone revenue
It is dishonest to say tax giveaways are doled to private firms. States and citizens gain most from exemptions
The issue of tax revenues foregone by the Union government has been raised repeatedly by eminent persons such as Amartya Sen and S. Gurumurthy and politicians such as Sitaram Yechury. It has become fashionable to raise this issue to castigate the government of the day for handing over vast sums of money to the private sector as tax concessions. Although official data makes it amply clear that the total amount of revenue foregone is made up of a variety of concessions vested interests, either mistakenly or dishonestly, cite the entire amount running into trillions of rupees as tax sops. Facts belie these assertions. Total revenues foregone have declined over the years as a percentage of gross domestic product (GDP) (see table). More importantly, official data makes it clear that these estimates include several fiscal incentives that cannot be classed as giveaways. In our understanding, these should not be included in estimates of revenues forgone. Some examples are in order here. Section 5A (1) of the Central Excise Act, 1944, empowers the Union government to lower tariff rates below levels prescribed in the schedules. These lower excise rates are applicable to mass-consumption goods such as medicines, toothpowder, candles, postcards, sewing needles, kerosene stoves, etc. Revenue loss on account of lower excise duties on these goods, which are essential components in any poor family’s consumption basket, are certainly not tax sops to big private companies. Another example is that of personal income tax concessions. These are given for encouraging savings and increasing disposable incomes of the lowest rungs of income taxpayers. These amounted to Rs.40,414 crore, or 0.4% of GDP in 2013-14 and were on account of investments in various savings instruments, repayment of housing loan, payment of tuition fees for children (Section 80C of the Income Tax Act, 1961), deduction on health insurance premium (Section 80D), higher basic exemption limits for senior citizens and women. These are welfare enhancing measures and are in no way unwarranted giveaways. Customs duty concessions are mostly for imported goods that are used as inputs for exports as defined under Section 25(1) of the Customs Act.	This is a standard global practice. This is not revenue foregone but simply a necessary measure for making India’s exports globally competitive. Custom duties were reduced from their peaks of around 220% in 1991 to 30% in 2002. But it seems that official estimates continue to include the difference from peak bounded rates and actually applied rates in revenue foregone. Can an outcome of major policy decisions that results in the reduction of peak tariff rates be considered as revenue foregone? There are then the area-based incentives. These amounted to Rs.17,999 crore in 2013-14, or 0.2% of GDP. These are given to hilly and backward areas such as north-eastern states and states enjoying special status, such as Jammu and Kashmir. These concessions are a consequence of a political decision and not due to any demand by the private sector. These concessions are given to improve regional and spatial equity and for expanding employment and economic activity in these backward regions. It is intellectually dishonest to claim these measures as tax sops when they are being used to further a cherished principle of the republic: equity between states. Before discussing tax concessions for private companies, it should be pointed out that corporate taxes accounted for 34% of total tax revenue and 63% of direct tax revenue in fiscal year 2013-14. Moreover, corporate tax revenue has increased at a compound annual rate of 20% over the last 10 years. This is by far the fastest growing segment of tax revenue. In contrast, the agriculture sector does not pay any tax whatsoever and custom duties and excise duties have increased on average by 15% and 7.7%, respectively, over the same period.	Concessions given to private companies or revenue foregone was Rs.68,720 crore in 2012-13 and not Rs.5.66 trillion as is often claimed. In 2013-14, these are expected to increase to Rs.76,116 crore or 0.7% of the GDP or mere 7% of total tax revenue. Concessions include those given for software technology parks (STPs), special economic zones (SEZs), the power sector, accelerated depreciation for industries established in new industries and hilly regions and weighted deduction for expenditure on scientific research. Various studies show that SEZs and STPs have significant positive impact on foreign-exchange earnings and employment generation. Thus, they contribute directly to poverty reduction. The net cost-benefit impact of SEZs, despite their tax exempt status (although the minimum alternate tax is illogically applied to units located there) is very positive. China powered its way into global export markets by the massive use of SEZs. So, to argue against these concessions is to deny our companies the opportunity to become globally competitive and increase India’s share in global export markets, which currently is lower than 2%. Most concessions included in revenue foregone undoubtedly contribute to enhancing public welfare or promoting exports. These should not be included in estimates of revenue forgone. Therefore, the finance ministry would do well to come up with a new methodology for calculating the actual revenue foregone and a new nomenclature for genuinely effective tax incentives. It is important to deny the ideologues this annual tamaasha of private sector bashing. Author is a Senior Fellow at the Centre for Policy Research and Founder Director of Pahle IndiaFoundation. The most recent book is Exploding Aspirations.

Prabhunovation seeks turnaround in railways

Prabhunovation seeks turnaround in railways

ASHOK B SHARMA

Railway Budget for the current year is novel in many ways. Departing from the usual routine of emphasising on laying of new tracks and raising passenger fares and prescribing slabs for freight rates, this year’s budgetary proposals concentrated more on the strategy for improving passenger service, amenities and safety; capacity expansion; decongestion of heavy haul routes and speeding up of trains; modernisation through extensive use of information technology; deployment of solar and renewable energy and waste management.

The Railway Budget is a part of trilogy of documents tabled in Parliament that includes a White Paper revealing the current status of country’s railways and Vision-2030 document that would soon follow. The Railway Minister Suresh Prabhakar Prabhu has come out with a five-year action plan to transform the ailing Indian Railways that entails an investment of Rs 8,56,020 crore. The mega investment is slated to be mobilised from multiple sources like multilateral development banks, pension funds. Railways intends to partner with key stakeholders like state governments, public sector corporations, multilateral and bi-lateral organisation and other national governments to gain access to long-term financing and technology from overseas. Indian Railways is opened for 100% foreign direct investment (FDI) in various sectors while retaining its overall ownership. It has also invited domestic private sector to improve the last mile connectivity, expand the fleet of rolling stock and modernisation of station infrastructure. It also sought partnership of Members of Parliament for sourcing from MP Local Area Development Fund and municipal corporations wherever necessary.

The private-public partnership (PPP) cell of Railways will be revamped to make it result oriented, “Foreign Rail Technology Cooperation scheme” will be launched. Joint ventures will be set up with States for focused project development, resource mobilization, land acquisition, project implementation and monitoring of critical rail projects. In order to meet the requirements of new lines JVs will also be set up with major public sector customers.

Without putting much pressure on the common man, Prabhu intends to mobilise funds for modernising the railway infrastructure. His predecessors had made some humble attempts but had not met with much success. The Railway Minister intends not to depend upon gross budgetary support (GBS) or extra budgetary support from the general exchequer and seek innovative ways of raising funds. However, he has been able arrest the fall in Annual Plan size of the Railways and raise it by to 52% to be at Rs 1,00,011 crore in 2015-16. Out of this 41.6% resources will come from Central Government support while 17.8 % will be generated from internal resources. 

Revamping management practices, systems, processes, and re-tooling of human resources will be taken up by the Railways to achieve targeted operating ratio for 2015-16 at 88.5%. Fast decision making, tight accountability, improved management information systems and better training and development of human resource will also be part of the action plan to achieve the goals.

If it is the Modinomics that is laying the foundation of new economic agenda, it is Prabhu’s innovative strategy that can be called “Prabhunovation” that seeks to bring a turnaround in Indian Railways.   

Critics say that the Railway Minister in his annual budget has not prescribed any timeline, but Prabhu’s strategy needs to be understood as part of the five-year vision plan.

The annual budget has not seen any hike in passenger fare, giving much relief to the common man. But basic freight rates of cement, coal, grains and pulses, urea, scrap and pig iron, slag, groundnut oil, bitumen and coal tar have been hiked in the range of 2.1% to 10%. The hikes in the case of iron or steel, iron ore (produced in the country) and kerosene has been marginal and limited to only 0.8%, while that of limestone, dolomite and manganese and high speed diesel oil have been marginally decreased. It is evident that cross subsidization of passenger fares by freight rate still continues.

The Railway Minister’s decision not to hike passenger fare has a rationale. The estimated diesel traction of Rs 24,220 crore out of the total estimated fuel cost of Rs 35,046 crore can be revised downwards due to the fall in global prices. Prabhu has been wise not to effect any hike in passenger fares.

Not that Prabhu has kept the development works in abeyance till resources are mobilised. Seventy seven projects covering 9,400 km of doubling/tripling/quadrupling works along with electrification, covering almost all states, at a cost of Rs. 96,182 crore will be taken up. Traffic facility works a top priority with outlay of Rs. 2374 crore have been proposed. In order to accelerate the pace of Railway electrification, 6,608 route kilometres will be sanctioned for 2015-16, an increase of 1330% over the previous year.

As per the Budget proposal, the speed of 9 railway corridors will be increased from existing 110 and 130 kmph to 160 and 200 kmph respectively so that inter-metro journeys like Delhi-Kolkata and Delhi-Mumbai can be completed overnight. Average speed of freight trains in empty and loaded conditions, will be enhanced to 100 kmph for empty freight trains and 75 kmph for loaded trains.

In order to make ticketing more passenger friendly the Budget proposes “operation five minutes” for issuing unreserved tickets, hot buttons, coin vending machines, concessional e-tickets for differently abled travelers, for booking tickets a multi-lingual e-portal  will be developed. Crediting of refunds through banks and unreserved tickets on Smart phones will be available. Proliferation of automatic ticket vending machines with smart cards and currency options, integrated ticketing system on the lines of rail-cum-road tickets, Defence Travel System developed for elimination of Warrants have also been proposed in the Budget.

The Budget has proposed e-catering to select meals from an array of choices. Ordering food through IRCTC website at the time of booking of tickets; integrating best food chains into this project; setting up of Base Kitchens in specified divisions to be run by reputed agencies for serving quality food and expansion of water vending machines will be taken up.

Hand-held terminals to Travelling Ticket Examiners (TTEs) for verification of passengers will now be provided for verification of passengers, possibility of extending facility of SMS on mobiles as a valid proof of travel for PRS tickets will be explored. A centrally managed Railway Display Network in over 2000 stations in next two years will be included besides  “SMS Alert” service to inform passengers in advance of the updated arrival/departure time of trains at starting or destination stations.

For the safety of women passengers surveillance cameras will be provided on a pilot basis in selected mainline coaches and ladies’ compartments of suburban coaches.

The Railways will also take up a project for introducing on-board entertainment on select Shatabdi trains; Mobile phone charging facilities will be provided in general class coaches & will be increased in sleeper class coaches.

The Railways has proposed to revamp its station development policy completely and simplifies process for faster development by inviting open bids. It has proposed to develop 10 Satellite Railway terminals in major cities with twin purpose of decongesting the city and providing services to suburban passengers.

Now, 200 more stations to come under Adarsh Station scheme; Wi - Fi to be provided at B category stations; facility of self-operated lockers will be available at stations. Passenger capacity in identified trains will be augmented; more General class coaches will be added in identified trains. The Railways has also approached NID to design user friendly ladders for climbing upper berths. It has also proposed more quota of lower berths for senior citizens. TTEs will now be instructed to help senior citizens, pregnant women and differently-abled persons in obtaining lower berths; middle bay of coaches to be reserved for women and senior citizen.  Provision of Rs. 120 crore has been made for Lifts and escalator; newly manufactured coaches will now be Braille enabled; building wider entrances for the ease of differently-abled passengers; allocation for passenger amenities up by 67%.

Rail Budget has also proposed Coastal Connectivity Program in partnership with ports for Nargol, Chharra, Dighi, Rewas and Tuna. Besides this, projects worth Rs 2500 crore will be taken up through BOT/ Annuity route. These include Wardha- Nagpur 3^rd line, Kazipet-Vijaywada 3rd line, Bhadrak –Nargundi 3rd line and Bhuj- Nalia Gauge Conversion.

The Budget proposes constituting an innovation council called “Kayakalp” for business re-engineering and introducing a spirit of innovation in Railways besides setting up of Technology portal to invite innovative technological solutions. Four Railway Research Centers in select universities for fundamental research have also been proposed besides ‘Malaviya Chair’ for Railway Technology at IIT (BHU), Varanasi.

Declaring safety of paramount importance for Railways, an action plan has been proposed for accident prone areas. The Budget also proposes 970 ROB/RUBs and other safety-related works to eliminate 3438 level crossings at a total expense of Rs. 6,581 crore, 2600% higher than the previous year. Train Protection Warning System and Train Collision Avoidance System will be installed on select routes at the earliest.

In order to make travel on Indian Railways a happy experience, the Budget has given thrust on Cleanliness and proposes a new department for keeping stations and trains clean under Swachh Rail Swachh Bharat Abhiyan. New toilets will be built at 650 additional stations; online booking of disposable bed rolls will be made available. 24X7 helpline number 138;toll-free number 182 for security related complaints have also been proposed in the budget.

According to some estimates, Railways need Rs 50,000 crore yearly for the next ten years to complete all ongoing projects. Add to this is Prabhu’s new agenda. Much has been talked about Modinomics paving the way for new economic agenda. It is also time to watch Prabhunovation in action.

(Ashok B Sharma is a senior Columnist writing on strategic and policy issues in several Indian and international newspapers and magazines. He can be reached at ashokbsharma@gmail.com His mobile phone number +91-9010902204)