When India’s road infrastructure was not on a par with the development the country was aiming at, the then Vajpayee government announced the grandiose plan of four-laning the Golden Quadrilateral and the North-South and East-West corridor under the National Highway Development Programme (NHDP) in 1998. Among many resources, an amount of `2010 crore—accrued from the additional cess of `1 levied on petrol and high-speed diesel during 1998-2000—was also allocated for the NHDP. It was this vision and implementation strategy of Vajpayee that made possible the near-completion of four-laning of Golden Quadrilateral before he left office in 2004.
The Vajpayee government had to forcefully levy tax on petroleum products to accrue funds for the development of roads. But, the current government headed by Narendra Modi has got a rare opportunity with decreasing crude oil prices. Part of the reduction in the crude price since June this year has been passed on to the consumers and the rest to mop up the revenues for the Union government with the increase in excise duty on petroleum products. The primary intention of increasing excise duty now is to contain the fiscal deficit which the government promised in the June 2014 budget. The secondary intention is to keep enough reserves so that when crude oil price rebounds, the government can compensate part of the oil hike for consumers.
But there should a third purpose to it. The windfall benefits that accrue from the fall in crude oil prices should be used for developing the energy-efficient, cost-efficient and least polluting mode of transport, the railways. With CPI (consumer price index) inflation at about 6-7 per cent in 2014 compared to the average inflation of 10 per cent between 2008 and 2013, moderately good days are here for the government and the people. The decrease in petroleum product prices doesn’t make people as happy as the increase in petroleum prices makes them angry and frustrated. Moreover, the consumers who have gotten habituated to higher prices of petroleum products over the years might have already adjusted their expenditure on fuel accordingly. The best time for the government to invest in low oil guzzling infrastructure development is when oil prices remain plummeted. The railways have undoubtedly proven the most energy-efficient transport system the world over. But, Indian Railways has been suffering to even complete projects that were announced three decades ago. It was reported that 406 projects to the tune of `1.85 lakh crore have remained unfinished for the last 30 years. Many of them are reported to yield a poor rate of return on investment as they were announced to satisfy political exigencies at different points of time. The silver lining is that even among these 406 projects, there are about 30 projects that are estimated to give good returns on investment but have remain incomplete for lack of funds. These projects require `10000 to see their completion.
Bringing private investment to better rail infrastructure and services is a good move in that growing demands of rail infrastructure and services cannot be met with budgetary allocation alone. But, bringing in private players will work only for greenfield projects. The projects, which have been initiated and half completed by the railways, will see the light of day only if the latter provides the remaining funding. Otherwise, the costs already incurred remain sunk costs.
It is expected that crude oil prices will dip further to $60 in the near future. If this happens, the Union government will have to use the proceeds judiciously for the betterment of the nation. Rather than passing the benefit to the consumers or compensating the shortfall in revenues for the exchequer, to begin with the government should allocate the amount so that the 30 projects are completed in a year or two and lines are opened for freight and passenger traffic. There is a caveat. The proceeds of petroleum product sales have to be used only for the development projects and not for reducing the operating ratio, which is about 93 per cent at present.
Just as the Vajpayee government introduced a central road fund to support projects of national highways, state highways and village roads, this government should also set up a permanent Central Railway Fund, on the lines of Central Road Fund, to create a corpus from the falling crude oil prices to complete remunerative but pending rail projects. An estimated `25 lakh crore will be required in the next 15 years to make Indian Railways a competitive and dominant transporter of passengers and freight in India. Although much of the required investment will come from private participation, the government will also have to allocate a substantial share of the funding requirement from its resources. A Central Rail Fund is one of the many ways of mobilising resources for rail development.
If the share of railways in passenger transport and freight is increased, it would reduce the linkages between the GDP growth and growth in energy consumption; thereby lessening the influence of energy consumption on growth. India has to invest in energy-efficient transport modes if it wishes for a high growth that is sustainable for the next couple of decades. As evident from the deep-rooted belief of the prime minister in an India First theory, the present government has a clear nationalistic outlook where national welfare is paramount. Moreover, as clear from various moves initiated in the last six months including the change of guard in the railway ministry, the Modi government is determined to lift the railways to the next level. In this scenario, if the government fails to grab this opportunity of expanding rail infrastructure by leveraging falling crude prices, no one else will.
The Modi government has declared December 25, the birthday of Atal Bihari Vajpayee, as good governance day. The government should take a cue from the central road fund model of conception and execution of road development and implement it for the railways. This would be the best tribute to the good governance provided by Vajpayee.
The author is a doctoral scholar of Public Systems Group,IIM-Ahmedabad.
Email:ramakrishnan@iimahd.ernet.in