1. Major restructuring of Railways on anvil
UPSC Syllabus: Prelims: Economy | Mains – GS Paper III – Economy
Sub Theme: Restructuring of Indian Railways | Problems with Indian Railways | UPSC
The Indian Railways, the country’s largest employer and transporter, is heading for a major restructuring.
These proposals for the Ministry of Railways are part of a report on rationalization of government bodies prepared by the Principal Economic Advisor, Ministry of Finance, after studying the structure and distribution of Railways ministry.
- It calls for winding up the Central Organisation for Railway Electrification (CORE), the Central Organisation for Modernization of Workshops (COFMOW), the Centre for Railway Information Systems (CRIS) and the Indian Railways Organisation for Alternative Fuel (IROAF) (already closed on September 7, 2021).
- It calls for merger of Rail Vikas Nigam Ltd into IRCON, of Rail Tel into IRCTC, and a takeover of Braithwaite & Co Ltd by RITES.
o IRCON – a specialised infrastructure construction company, and RVNL which implements projects to create and augment rail infrastructure capacity on a fast-track basis, have similar business functions. Hence, it has said RVNL can be merged into IRCON.
o Highlighting the overlaps between Rail Tel, a large telecom infra provider through optic fibre networks along railway tracks, IRCTC, a mini ratna, whose core activity is internet ticketing, and CRIS, an autonomous society to develop software for passenger ticketing, freight invoicing, passenger train operations, etc. The report recommended that CRIS be wound up after handing over its work to IRCTC, and then Rail Tel be merged into IRCTC.
- Railways Board and the Ministry of Railways pull out of direct involvement in Indian Railway Welfare Organisation, a society set to provide housing to serving and retired employees. IRWO be treated as a privately run body.
- Bringing 94 schools run by Railways under the Kendriya Vidyalaya Sanghatan (KVS), upgrading 125 Railway Hospitals — most of them under-invested — through an institutional mechanism and opening these to the public at large. Wherever appropriate, it suggests a PPP (public-private partnership) model for schools and hospitals run by the Railways.
This will help the organisation focus on its core competence of running and maintaining the railway service.
India has the fourth largest railway network in the world. It has come a long way since 1950-51 in terms of number of trains and quantum of traffic carried. However, it has been highlighted that Indian Railways may end up as burden on the national economy due to the number of issues. For instance, according to the recent CAG report, the operating ratio of Railways has increased to 98.4%, which is considered to be the highest in the last 10 years.
In this regard, let us discuss in detail about the various problems with the Indian Railways and what can be done to improve its performance.
Problems with the Indian Railways:
Decline in share of Freight Traffic: The modal share of railways in the transportation of surface freight has declined from 86.2 per cent in 1950-51 to 33 per cent in 2015. This decrease is on account of shortfall in carrying capacity and lack of price competitiveness. The Indian Railways has kept the passenger fares at lower value while it has increased the freight charges to compensate for this los. Hence, the cross-subsidization of low passenger fares by artificially high freight rates has led to shift in favour of road transport, for both freight as well as short distance passenger traffic.
Under- Investment: The expenditure on the railways as a percentage of transport expenditure declined from 56 per cent in 1985-90 to 30 per cent in 2007- 12. Despite its contribution to the overall economy, under-investment in the sector has crippled operations and hampered capacity augmentation.
Organizational structure: Delays in decision making, inadequate market orientation lead to slow turnover times and delays in the implementation of railways projects. For instance, introduction of new trains, provision of halts and establishment of new projects are taken on the basis of political considerations rather than commercial considerations.
Internal generation of resources: The lower relative cost of transporting freight by road has led to a decline in the share of the railways. Low and static prices for the passenger segment have also contributed to low internal generation of resources.
Safety and poor quality of service delivery: There have been several accidents and safety issues in the IR in recent years. Poor cleanliness of trains and stations, delays in train departures/arrivals, quality of food and difficulties in booking tickets are key issues.
Higher Operating Cost: According to CAG’s Report, the operating cost of Indian railways has increased to 98.4% which means that Indian Railways is spending around Rs 98 to earn Rs 100. The higher operating cost of the Indian railways is on account of higher expenditure due to salaries and pensions of the Railway personnel. The higher operating cost has in turn reduced the capability of the Indian railways to undertake capital investments to improve the railway network within India.
How to address these problems?
The Bibek Debroy committee on Railway Modernisation and Anil Kakodkar Committee on improving railway safety have given several recommendations to improve the performance and safety of Indian railways. Some of these recommendations are:
Rationalize fare structures and subsidies: There is a need to rationalise the passenger fares and freight charges by ending the cross-subsidisation model presently followed by railways. Freight tariffs should be competitive with the cost of road transportation so that there is increase in the modal share of Railways.
Independent Regulator for Railways: There is a need to set up an Independent Railways Regulatory Authority. Such an authority would not determine the tariff, but it will monitor whether the tariff is market determined and competitive. It will also bring in specialised and technical expertise which is needed to manage the Indian railways.
Focus on Core Activities: Apart from its core function of running trains, Railways also engages in non-core activities such as running schools, hospitals and a police force. To enable to perform its core-function effectively, railways would have to reduce costs on these non-core activities that are non-remunerative in nature, and instead improve the efficiency of running trains by greater resource allocation to this function. Non-core activities can be outsourced to private entities.
Accounting reforms: The current accounting system does not provide details of the cost of various activities and services, such as introduction of new trains and scheduling of stops. It neither tracks assets nor assesses liabilities. Consequently, it becomes difficult to compute the costs and benefits of any project or activity. Hence, in this regard, there is a need to adopt accounting reforms to track these details. This will enable us to understand how efficiently the Indian railways is managing its finances.
Financing of Projects: The finance minister has recently stated that Indian railways would need an investment of around Rs 50 lakh crores between 2018 and 2030. However, the financial status of the Indian Railways is at ‘precarious’ situation which has a direct bearing on the modernization, upgradation of technology, replacement of the old assets and safety aspects of railways. Hence, in this regard, there is a need to improve the expenditure management of Indian railways and improve the internal revenue generation. For instance, the Railways can lease huge amount of land that it holds to the private sector for certain duration of time and earn revenue. Similarly, railways can enter into PPP agreements for the development of stations.
Better utilization of existing infrastructure to address congestion: There is a need to prioritize ongoing projects to improve capacity utilization. Timely completion of these projects will generate more revenue. At the same time, we need to maintain and upgrade the existing network to ensure that supply keeps up with demand.
Safety of Railways: The Kakodkar committee had recommended for an investment of Rs 1 lakh crores over a period of 5 years to improve the safety of Indian railways. It had recommended the creation of a statutory Railway Safety Authority with enough powers to have a safety oversight on the operational mode of Railways.
India needs to have a rail network that is not only efficient, reliable and safe, but is also cost-effective and accessible. It can play a significant role in the growth and development of Indian economy, apart from promoting national integration. Hence, in this regard, there is a need to undertake the modernisation of Indian railways and ensure that it is able to cater to the demands of $ 5 trillion economy in future.
2. WTO’s agriculture pact tilted against developing countries’
UPSC Syllabus: Prelims: Economy | Mains – GS Paper III – Economy
Sub Theme: Agreement on Agriculture (AoA)| Green Box Subsidies| Blue Box Subsidies | Amber Box Subsidies | Current Issues with AoA | UPSC
The Agreement on Agriculture (AoA) basically aims to facilitate international trade in agricultural goods by putting a cap on the agricultural subsidies given by the member countries. This agreement stands on 3 pillars viz. Domestic Support, Market Access, and Export Subsidies.
Green Box Subsidies: It include subsidies such as R&D, Expansion of Irrigation Facilities, Income support to the Farmers (which is not product specific) etc. These subsidies are considered to be non-distortionary in terms of international trade. To qualify, green box subsidies must not distort trade, or at most cause minimal distortion. They must be government-funded and must not involve price support. There is no limit on Green Box Subsidies.
Blue Box Subsidies:
Blue box supports are subsidies that are tied to programmes that limit production. Hence it is an exception to the general rule related to agricultural support. The Blue box subsidies aim to limit production by imposing production quotas or requiring farmers to set aside part of their land. Currently only few countries like Norway and Iceland provide such subsidies. There is no limit on Blue Box Subsidies.
Amber Box Subsidies: Nearly all domestic support measures which distort production as well as International trade. These include subsidies such as Electricity, Fertilisers, Seeds, Water, MSP etc.
Limit on Amber Box Subsidies
- Developing countries: 10% of the domestic agricultural value production in 1986-88.
- Developed countries: 5% of the domestic agricultural value production in 1986-88
Current Issues with the AoA
Stockholding is a kind of policy instrument used by a government to procure, stock and distribute the food. Minimum Support Price (MSP) is one of the instruments of Public Stockholding.
In order to implement National Food Security Act(NFSA), the Government is required to procure more food grains by announcing MSP. On account of this, Government would be required to declare subsidies over and above the limit specified under AoA. This was being challenged by the developed countries such as USA, which wanted India to stick to subsidy limit imposed under AoA.
At the Bali ministerial conference in December 2013, India secured a “peace clause”. Under it, if India breaches the 10% limit on subsidy under AoA, other member countries will not take legal action under the WTO dispute settlement mechanism.
Further, in 2014, India forced developed countries to clarify that the peace clause will continue indefinitely until a permanent solution is found. Presently, India has been demanding a permanent solution on Public stockholding in order to implement National Food Security Act.
India’s Argument against Subsidies under AoA
- The percentage limit on the Subsidies is quite deceptive. In terms of absolute value, the developed economies have been providing subsidies far higher than India.
- The limit on the subsidy does not factor in the Inflation. It is calculated as the value of production in 1986-88. Since then, the prices of agricultural commodities have increased.
- Under the Green Box Subsidies, direct income support to the farmers (not linked to specific product) is allowed. This has been misused by countries such as USA. The direct cash transfers to the farmers in USA account for almost 50% of its agricultural value production.
- Procurement of the Commodities under MSP regime is not for boosting agricultural exports, rather it is for meeting food security needs of Indian Citizens. Hence, procurement of commodities for ensuring food security should not be included in the Amber Box, rather it should be included in the Green Box.
3. GST Council not for inclusion of petroleum products: FinMin
UPSC Syllabus: Prelims: Economy | Mains – GS Paper III – Economy
Sub Theme: GST Council |Inclusion of Petrol, Diesel within GST | GST Compensation Mechanism | UPSC
GST Council: Constitutional body (Article 279A) for making recommendations to the Union and State Government on issues related to Goods and Service Tax.
Composition: Chaired by the Union Finance Minister and other members are the Union State Minister of Revenue or Finance and Ministers in-charge of Finance or Taxation of all the States.
Decision Making: Voting Weightage- Centre (1/3) and all States (2/3). Decision shall be taken by a majority of not less than three-fourths of the weighted votes of the members present and voting. Thus, Central Government has an effective veto on all decisions of the GST Council.
Quorum: ½ of the total members
Recent Decision about GST Compensation Mechanism
About GST Compensation Mechanism
- The introduction of the GST was a major tax reform aimed at simplifying and rationalizing the indirect tax regime in India. It subsumed a number of central and state indirect taxes such as Excise Duty, Service tax, Central Sales Tax, VAT/ Sales Tax, Octroi duty etc.
- Some of the states had apprehension that introduction of the GST would lead to fall in their revenue. Hence, in order to allay the fears of the states, the Central Government promised for compensating the states for the losses in their revenue through the imposition of GST Compensation cess.
- Compensation cess is levied on luxury and sin goods, and the proceeds are used to compensate states for any loss they incur within the first five years of GST implementation.
- According to the GST Act, States and UTs with Assemblies are guaranteed compensation if the GST revenue growth is less than 14 per cent. The amount is paid bi-monthly.
4. Picking up the threads from the Afghan rubble
UPSC Syllabus: Prelims: International Relations | Mains – GS Paper II – International Relations
Sub Theme: India’s concerns on regime change in Afghanistan | UPSC
Context: The Taliban does appear to have established control, by and large, over Afghanistan, with the last remaining holdout at Panjshir having fallen.
India’s concerns with respect to regime change in Afghanistan:
- India’s ambitious connectivity projects for connecting Central Asia and Afghanistan via Chabahar port have come to a standstill
- India’s Investments:India’s civilian investments in the Afghanistan are all at the mercy of Taliban now. New projects like the building of the Shahtoot dam near Kabul, may get delayed or scrapped.
- Strengthening of terrorist groups at the border:Terror groups inimical to India like Lashkar-e-Taiba and Jaish-e-Mohammed are likely to be bolstered with victory of Islamic fighters over a superpower and may take this opportunity to push for heightened levels of insurgency in J&K
- Growing Pakistan Shadow:Pakistan Army may now play a major role in the power dynamics within Afghanistan. ISI chief has already met top leadership of Taliban
- Engaging with Taliban:
Talks with Taliban is no more an option but a necessity because Taliban is now the government of the Afghanistan and not an Insurgency group to ignore anymore. It is said that there are no permanent friends and no permanent enemies in international relations and the only aim is to secure one’s national interest. So New Delhi should immediately start serious engagement with Taliban leadership
- Keep investing in Afghanistan:
India must continue its investments in Afghanistan. Development leads to stability. Even, Taliban has been in favour of India’s supportive role.
- Enhancing bilateral trade: It will help India retaining its diplomatic leverage irrespective of who is in power.
- Regional cooperation: India can use its relations with friendly countries like Russia, such as Saudi Arabia, Oman and UAE to press for its concerns in Afghanistan.
- UN support:Leverage India’s presence in UNSC to press for conditions on Taliban that Afghanistan is delinked from international terrorism and strong actions follow if such links develop
In a world of hard geopolitical realities, it is India’s soft power, strategic autonomy and development assistance to those in need, particularly in its neighbourhood, that has been the strongest chords to its unique voice in the world. The moment to make that voice heard on Afghanistan is now.