Chairman Lalu

Lalu Prasad outshouted the Opposition while saying “Rs 20,000 crore” — this fiscal’s railways’ profit. The meaning of this number was lost on the Opposition. The real import of this was probably lost on the railway minister himself. The railways has become India’s biggest profit-maker. At Rs 20,000 crore, it is 25 per cent higher than ONGC’s trailing 12 months’ profits of Rs 16,000 crore and 36 per cent higher than its previous year’s figure. If the railways were a listed company, it would command a PE multiple of around 20 times and be valued at over Rs 400,000 crore — India’s most valued company. And we’ve not factored in its huge land banks, arguably the largest area owned by any single organisation barring perhaps the Armed Forces.

Critics saying that by not raising passenger fares Lalu is building electoral capital are also missing the point. Cross-subsidy is a reality that a public owned carrier has to live with. Even commercial airlines cross-subsidise certain fares. The real question is whether the railways, like private airlines, have a business model. Lalu has shown the railways have begun to operate as a commercial organisation, even while working with constraints like supporting a huge unsackable workforce of 1.4 million, delivering cheap fares and plying unviable routes. Lalu’s strategy has been to lower, consistently, the unit cost of transport. Last year, he showed results in the freight segment; this year, passenger losses are expected to fall; whether this sector can make profits remains to be seen.

Lalu’s challenges are two-fold. One, to be able to meet the 1,100 million tonne (mt) freight target for 2012, the railways will have to grow at a rate of 8.7 per cent per annum. That would be possible if the 8-9 per cent GDP growth continues and the railways simultaneously ride and cart it. If GDP growth falters, the ride could get bumpy. The second challenge is to find gains beyond productivity. In his four years, Lalu has been able to indulge in ‘plugonomics’ — plugging waste and increasing productivity by increasing axle load and the number of coaches, privatising services and increasing freight rates selectively. These sources will exhaust themselves in another two years or so. Where will future growth come from? The two freight corridors that could deliver growth will cost Rs 60,000 crore at the very minimum. And if Lalu is banking on public-private partnership to support these corridors, he will have to give a vital part of railway tradition away: control. The best way for Lalu to do this would be to move away from being CEO of the railways, ready with bright annual results, to being its chairman, who would look further. He would need to think beyond his term. For now, though, let us look at him as wonderful proof that Indian politics can produce the most unexpected engines of positive transformation.