Railways in for a surgery

RC Acharya

Ask wrong questions and you are likely to be handed out incorrect answers, hence the importance of framing the terms of reference for any committee to look into a problem area and suggest remedies. 

Perhaps for this reason alone  in spite of its best intentions  the Bibek Debroy committee set up by Suresh  Prahbu a year ago  started on the wrong foot and may end up with a plethora of recommendations not guaranteed to lift the Railways out of its financial mess !

When the financial graph of an organisation starts to head south, it's time to wake up, check out as to what is  going wrong or has NOT gone right. The year 1995-96 recorded perhaps one of the Railways' best operating ratio of 82.45%, which gradually crept up to over 94% last year. 

There was a brief spell, though for just three years when the inimitable Lalu Yadav lorded over the 1.3 million-strong behemoth when, thanks to some innovative financial jugglery by his trusted aides, the operating ratio was kept below 90%.

The continuing poor financial performance, when a mere  6% of the earnings is available for investment in its development and growth, set the alarm bells ringing in the higher echelons of the government for whom handing out yearly subsidies to the nation's economic life line has been a cause for worry for the past one decade. 

In its search for a remedy a committee under Bibek Debroy was constituted which has come up with its own unique set of recommendations. However, it’s like prescribing treatment to a patient whose medical history has not been looked into, or the cause of the ailment has not been identified before venturing to suggest remedies. 

Perhaps loath to analyse the various past acts of commission and omission, which have brought the Indian Railways (IR) to the brink of bankruptcy, Suresh  Prabhu has opted for an outright surgery, literally cutting up the Railways into various  profit centres and  inducting the private sector in a big way, hoping things would somehow work out for the better. 

This major surgery involving the separation of infrastructure from operations is to provide the private sector a level-playing field so that they could compete with the IR trains in both the passenger and the freight sector. Suresh Prabhu was perhaps influenced by the 'privatisation' story of  British and some of the European Railways which were guided in their  mission by the EU. ?

Unfortunately, one of the models to be copied viz. British Railways (BR), is nowhere in the same league as the IR. BR carries 60 billion passenger kms as compared to the IR's massive workload of over 1,100 billion passenger kms a year. 

Moreover, in the U.K. while the private sector which took over the train operations made all the profit, the infrastructure entity once again owned by the government — as the private sector had failed in maintain its safety standards — continues to be subsidised by the taxpayer, soaring to four times the level since the privatisation began.

Reportedly profits of train operating companies in the UK are mainly made by a hidden subsidy of low-track access charges levied by Network Rail (NR), a government entity which manages the infrastructure. These access charges are now at a level of only $2.56 billion, half of what it was at the start of privatisation. This is in spite of an increased usage of the infrastructure on account of a hike in the number of trains and passengers carried.

Resultantly, NR is not only unable to recoup the real cost of operating and maintenance of the infrastructure, but also spend an additional $8 billion a year on capital investment to improve the system, which is financed by issuing public bonds. While in 2003 NR spent more than $2.4 billion on maintenance and about $400 million on debt interest, a decade later it  spent $1500 million on maintenance and over $2.4 billion on debt interest charges — a state of affairs which the IR may soon be replicating if the proposed surgery goes through to make way for the induction of the  private sector !

Prabhu also desired that various departments do not work in isolation, a highly laudable objective perhaps not realising that his move to separate policy making and operations would end up isolating the Railway Board from the day-to-day activity which guides it in its policy-making function. For the seven Board Members are not mere figure heads but hands-on engineers and managers with years of on-job experience under their belt and are able to immediately  react to the changing  scenario as it unfolds. 

The other terms of reference include 'promoting exchange of officers between the Railways and other departments, estimate financial needs of the Railways and ensure appropriate frameworks and policies are in place to raise resources, both internally and from outside the government, to enable the Railways to meet the demands of the future' -- all laudable objectives which undoubtedly the committee has very well addressed, coming up with scores of  recommendations though all of them not pragmatic. 

The committee also had to examine and suggest modalities for implementing the existing Cabinet decision on setting up a Rail Tariff Authority and give its recommendations. This had been earlier proposed with a view to eliminating political interference in what is purely a commercial decision, and avoid situations when a freeze on hike of passenger tariff was imposed by the  successive Railway Ministers for almost a decade, leading to the present financial crisis faced by the IR.

All in all,  a fairly broad set of terms of reference amounting to a blueprint for reforming the entire Indian Railways is in itself a massive task which would take years to complete if there is a Railway Minister brave enough to take some of the bold and irrevocable steps with a rather uncertain outcome!  

The writer is a former member of the Railway Board