Reforming The Indian Railways - Are We On The Right Track?

Prof S Sriraman reviews the interim report of the Debroy Committee on railways. 

The Committee for Mobilisation of Resources for Major Railway Projects and Restructuring of Railway Ministry and Railway Board recently submitted its interim report on the contention that this can serve as a draft with the final report expected in August later this year which would take into consideration, views from one and all. This approach is indeed refreshing and it is hoped that views from outside would be taken seriously.

Interestingly, the report begins with a preface under Chapter 0 giving the impression that all of the plans and policies of Indian Railways had to be looked at all over again with the terms of references given to the Committee almost amounting to recommending a blueprint for the Indian Railways.

Further down but soon, it is remarked that ‘There is a long list of Committees that have examined the functioning of the Railways at various points in time’ (p.6) and this large number of reports has both a positive and a negative angle.

On the positive side, this large number illustrates the importance attached to the Railways. On the negative side, repeated reports highlight the non-implementation of recommendations, compounded sometimes by the phenomenon of recommendations being conflicting (p.7). The question is: Where do we place the current Committee in terms of this classification? Does not every report have these two sides? It is suggested in the report that the recommendations should be taken seriously and implemented. Was it not the hope of the earlier committees too?

In this piece, we attempt to examine whether there are compelling reasons to get down to a plan of action based on its recommendations that are supposedly based on a new and realistic approach which makes it easier to practice than merely preach. We make no attempt to follow the scheme in terms of the recommended scheme of things but would prefer to take up ideas in a non-structured way. We begin with comments on some significant recommendations here and then have a quick look at some of the chapters in specific.

History, they say, repeats itself. A quick overview of the report gives us the impression that there is very little in it that has not been recommended before, especially in the past decade or so. In another sense too, there is of lot of history in the report, particularly some interesting anecdotes not quite known to the person on the streets but which make for interesting reading. History can be rewarding but at the same time misleading too. The long quotation from the Acworth Committee’s report on separation of railway finances from the general finances seeks to justify such a split in a particular context which, according to the committee, is no longer the case.

Thus the plea for getting back the railway budget into the overall scheme of the Central government’s budget. In fact, the idea is to ultimately get down to an overall scheme of supervision of the railway network by the Prime Minister’s office (with the railway minister coming only in a marginal way) with the usual top bureaucratic framework intervening in the activities of the system. The recent pathetic experience in this regard especially in regard to overall infrastructure development at the Central and State levels needs to be kept in mind. This is something to be viewed with great caution since everyone recognises the professionalism of the current scheme of things as one which has gone somewhat haywire due to refusal to accept the changes occurring exogenously.

However, that does not mean that a reversal to a generalised scheme of control and supervision is a better alternative. The Committee would have done well to suggest changes to ensure a greater sense of professionalization which, of course, they admit when attempting to overhaul the HR component of the system. And this is not something that has been missed out by earlier Committees but something that the railways themselves hesitated to work on given the somewhat closed nature of thinking that has for a long time plagued the organisation and its employees. This recommendation of the Committee, given its composition, was not unexpected but it may be a little too premature to take that line of action seriously. Among the government departments, the Railways are the most professional of them all and to tweak the current position much more than required can backfire.

On the question of dividend payment on the capital-at-charge, it almost admits to considering it very arbitrary and anachronistic. Why not then suggest a write off on this account till a specified period of time? This was a forceful plea made by one of the Working Groups for the National Transport Policy Committee (GOI, 1980) but it went unheeded fearing that this would have to be followed in the case of other departments too. With liberalisation in other infrastructure sectors taking place, this has, in fact, been done though in a different form. It is time that this burden is lightened as far as the Railways are concerned. Given that the capital-at-charge is the only link between the central government budget and the railway budget, it is necessary to recommend that this can take the form of an explicit subsidy especially when it comes to opening up new areas in the country. The era of cross-subsidisation should come to an end soon. And this is not made explicit anywhere.

In the context of examining the overall role of the Railways, it is pointed out that the multiplier effects of developing the railway system can be significant though it has often been pointed out that roads and road transport have a much higher effect. Despite this, the role of the railways must not be merely looked at from the point of view of a multiplier effect only (and that too only on manufacturing based on a ‘’Make in India’’ argument) but must be considered from a larger development perspective. In this context, the need to expand the network in many states is being felt based on the development argument which is still very valid in a country like ours where basic arterial routes across some states need to be in place. With these connections, the road feeder mode would be able to handle the first and last mile connectivity issues easily.

The performance analysis of the IR undertaken reports nothing new. The lack of efficiency of operations is mentioned with the remark that speeds have fallen to those prevalent before World War II. Is this not due to the ever growing number of passenger trains introduced to keep political interests happy? The Committee does well to point out the congestion on tracks that has been a phenomenon for quite a few decades. Was it then right to go in for the Golden Quadrilateral (GQ) in terms of highways when it was so badly needed on the railways? It is precisely these things that the PMOs’office needs to intervene on rather than on the nitty gritties of railway operations. Later in the chapter, there is talk about introduction or elimination of trains based on better costing practices. This is true but the Committee should have gone beyond and talked about the need to coordinate with the road mode especially on short distance passenger movements which currently pose a major problem as far as availability of train paths are concerned. A holistic approach is required in this regard.

The Committee observes that there can be no reforms of any type without transiting to a commercial accounting system. This observation has oft been repeated with nothing being done about the issue. With a ‘costing cell’ set up quite some time back and a cadre of Railway Accounts officers in existence for decades, it was not at all difficult to effect this transition. It should be done now. But this may involve a prolonged period of time during which the existing system needs to be looked at very closely with a view to providing a more rational rather an arbitrary basis (currently in practice) for pricing of services.

In any case, whatever the accounting system that we ultimately adopt, tariffs would necessarily have to be of the ‘’two part’’ type, the only difference being that different costs and their allocation would be far more systematically defined based on more reliable data. Even here, it is necessary to emphasise the need to define the various parameters on the basis of which costs are allotted. Today, the basis for cost allocation is not merely the ‘’passenger kilometres’’ or tonne kilometres’’ performed but a whole lot of other outputs which are irrelevant especially when it is clear that these two are the only units for passenger and freight tariff fixation respectively.

Moreover, the fixation of fares for different types of services is based on a multiplicand of the basic passenger service fare. This approach should be given up and this is possible once the accounting system is in proper shape. In the context of fares especially raising of fares, it is observed while there is no question that passenger fares have to be increased, there must be provision of better passenger services and amenities. To say this when passenger fares have for long remained fixed is almost like flogging a dead horse. Is this not a vicious circle that one should attempt to come out of? Will the Committee attempt to work out the losses due to failure to increase in fares in the past few decades and confront the Government with a figure that needs to be provided immediately so that services can also be improved soon?

On the zonal split up that took place more than a decade back, the Committee strongly feels that this should not have happened because of the presence of economies of scale and other economies (density and scope) which incidentally has been researched in fairly great detail by many researchers (undertaken between 1980s and late 1990s, for example Anand, 2004) who said emphatically that this was not time for such split ups. There is a comment of the lack of clear commercial principles in regard to evaluation of projects. Traditionally, evaluations (financial and economic) were undertaken by the Economics Unit of the Railway Board but had to be finally whetted by the Planning Commission which made its presence strongly felt in this context to ensure that public investment also attempt to generate surpluses while at the same time provide for the larger developmental effects. It is true that the IR has not made operating losses for quite some time. This was possible by arbitrarily cutting down on allocations to the various funds including the DRF about which the Committee rightly says that there was no proper basis for provision to this important but neglected fund which virtually has no balance at all today.

Chapter 2 is virtually a summary of what has been written about the problems associated with a state owned railway organisation. There are number of World Bank and Asian Development Bank papers and reports outlining the dangers and emphasising the need to unbundle with the proposition that infrastructure could be separated from service provision. The examples given at the end of the chapter refer to a networks that are virtually used only for freight movement which makes it easier for the reforms suggested to succeed. In a situation dominated by the need to move passengers first without really caring to recover even a part of the costs, the implementation of the Committee’s proposal can only lead to chaos and confusion.

Incidentally, it is only partially true to say infrastructure is held by the State in the UK context. In the initial years of the privatisation of BR, this was so but soon Railtrack was privatised which, according to many, led to further deterioration of services and the steep fall in investments on infrastructure due to the lack of any coordination between Railtrack and that entity which organised the operation of services. The reversal that took place only a few years back (Network rail) appears not have improved the situation in any way. Even today, the systems in the UK and some European countries are in a very fragile state, not having recovered from the damage that separation of services from infrastructure imposed on them.

As for the long drawn arguments on the need for choice and there by competition, it must be recognised that the railways in India have been facing very stiff competition from the roads for quite some time and most recently from airlines. Todays, the roads are getting ready to compete on long-distance movements where railways do really have an advantage. The railways must be given the encouragement to fulfil such a role as pointed by the study undertaken for the Planning Commission (RITES, 2009).

In the context of proposing privatisation in stages, why could they not have pursued the line of argument put across by Dalvi (1997) who carried out the entire privatisation exercise of the BR when he was Transport Advisor to Thatcher and undertook such a similar experiment then only to be disillusioned with the new system a decade later? In fact, GOI (2002) had also argued in favour of corporatisation but was shown the door when it came to even a consideration of implementation.

Suburban rail operations come in for scrutiny only marginally but the recommendation is that they should be hived off a SPVs with their own divided accounts. It would be useful to recollect here that this was precisely the recommendation of a study done for the Railway Board by Sriraman and Apte in 1993. The reasoning was that local needs are typically required to be met by local operators. The Mumbai Rail Vikas Corporation came into being nearly a decade back and it was hoped that it would take over the operations of the system. It is very disappointing to hear from insiders that the new organisation’s mandate was to support construction and possibly maintenance of the system and no more. As for the suggestion by the Committee that suburban rail accounts need to be looked at and separated, it is useful to note that such an exercise was carried out for suburban operations of the Western Railways under a group headed by a former Financial Commissioner.

The Committee does well to emphasise to begin with the need to hive off core activities. This idea, it is to be emphasised, is not new and has been in the air for quite some. An attempt to provide a reorganised Railway Board structure provides a summary of all that has been said in most Committees in the recent past especially those headed by Rakesh Mohan (GOI, 2001, 2014). In fact chapter 4 draws heavily from Rakesh Mohan (GOI, 2014) and similar work. In fact, the author, as Chairman of a Sub Group on the Railways for GOI (2014) on Determination of Full Costs, Accounting System and Tariff had attempted to examine these issues and even proposed to look at costs in a detailed way – the way they are- so as to build up a better tariff model to last till such time that the accounting process gets straightened out. This did not find favour with anyone especially those in the Railways with the result nothing further was allowed to be done. .

To conclude, it must be said that while the recommendations appear to be radical there is very little that is new. Of course, detailed plans to overhaul the accounting system, the HR framework, etc. are useful to look at and consider. We feel the Committee should have had a closer look at the NTDPC Report (GOI, 2014) and considered the role of the railways in a national transport systems context rather than focus exclusively on the organisation as it is today or rather in terms of IR and/ or the Indian Railways that they have talked about but not explained in any meaningful way. It is also obvious that the Committee has drawn upon ideas from a number of reports and researched papers which one hopes would all be duly acknowledged in the final report.