Let's take a very quick look at the highlights of the Railway Budget...

Passenger fares reduced across the board; Second class fares for journeys over 50 km to cost 5 percent less; Sleeper fares down by 5 percent; AC III-tier fares cut by 2 percent; AC II-tier fares reduced 4 percent; AC first class fares down 7 percent; Freight charges for petrol and diesel cut by 5 percent; 53 new trains to be introduced; safety plan for railways, closed circuit TVs [Get Quote] on stations, et cetera. . .

Some of the financial highlights are as follows:

• Rs 25,000 crore in profits in 2007-08
• New earnings of 21 percent in 2007-08
• Rs 30,000 crore to be spent on network expansion
• Rs 49,250 crore invested in new projects
• Cash surplus in 2007-08 at Rs 25,000 crore

In order to understand Lalu's budget, in financial terms, it would do us good to get some basic facts about Indian Railways.

India has amongst the lowest rail fares in the world. An Indian consumer's fare is about 50 per cent of what his Chinese counterpart pays.

In sharp contrast, Indian Railway's cargo fares are among the highest. Even after the 5 per cent reduction announced by Lalu, cargo fares in India are costlier than China's, by at least 25 per cent.

Further, only about 35 to 40 per cent of all cargo traffic in India goes through the Railways. Railways' share has been falling consistently over the years.

The main issue then, for Lalu to handle in this Budget would have been to look at strategies to increase Railways' overall share in the country's cargo movement. We don't find any clear policy directives aimed at this, which in my opinion, is a great opportunity lost.

Given Railways' reserves, Lalu could have gone in for an aggressive cargo price reduction aimed at increasing the cargo volumes, which could have compensated the Railways for the decreased fares.

Another area which Lalu could have handled better, is in terms of the pricing of AC-II tier fares. Given the cash surpluses that he has been able to generate, one would have expected Lalu to aggressively reduce fares in the AC-II Tier and AC-III Tier categories.

As per the railway ministry estimates, between April 1 and December 31, 2007, the number of passengers traveling in the AC-II tier segment grew by just 7.46 per cent compared to 23.65 per cent in the previous year, pointing out to the intense competition from the low cost airlines.

A 5 per cent reduction announced is rather inadequate and given his huge reserves as aforesaid, Lalu could have gone in for the kill, by reducing AC-II tier fares by, say, 10 to 15 per cent. This again, is an opportunity lost.

Despite these, Lalu's Budget has a lot of positive factors including the announcement of the provision of investing Rs 1 trillion ($25 billion) for public-private-partnership (PPP) to upgrade and modernise the Indian Railways.

One question which keeps coming back is... Is the Indian Railways really making the very high 'profits' that the Minister claims it's making, over the years on a commercial and accounting sense.

As is well known, the Indian Railways is a part of the government and not being a company, it has no need to follow basic accounting principles and practices which any public sector company has to follow. This means that the Indian Railways does not make provisions for many expenses and losses, including bad debts, which we are told, runs into large numbers.

There are also concerns about the depreciation policies and there are reports that adequate depreciation provisioning is not made. In his Budget speech for 2005-06, Lalu had emphasised the need to bring in greater transparency in the financial reporting of the Railways and had stressed on the need for uniform accounting standards.

Not much would seems to have been done in this direction. The Minister would need to appreciate that greater transparency alone would add credibility to his claims of profits, etc.

All said and done, nobody can dispute the passion with which Lalu has gone about, doing his job, over the last five years. His claims that Indian Railways is one of the very few profit making railway establishments in the world are true, nonetheless.

Of course, all credit to Lalu for using the catch word' profit', which is something nice to hear. His predecessors would have been content with dull words like 'surplus' and 'deficit'.

I was very happy to see the enthusiasm and aggression that Lalu displayed when he read out his speech. What used to be a dull exercise has now got a lot of colour. It was Lalu, Indian Railways' CEO who was presenting his organisation's annual results. I enjoyed every bit of it.

One great thing about Lalu is that, he has not increased the burden on his consumers and has, on the other hand, been consistently reducing the fares while increasing the amenities and this, he has been doing for five long years.

Lalu doesn't perhaps speak good English. . . he is not an economist or an academician, either. But, who can dispute that he has indeed been delivering, year after year. He has proved that good (or bad depending on which party you belong to) politics can indeed go with good economics.

Perhaps, there is a lesson or two here, for Mr Chidambaram, who is also poised to present his fifth consecutive Budget, which is expected to be populist.

Most importantly, will PC emulate Lalu in terms of not increasing the burden on the tax payer and in ensuring that he doesn't take away any benefit or exemption which the tax payer is already enjoying? So, will PC combine good politics with good economics?

Wait for February 29.