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On a new track

Railways revival could begin with reforms charted by Sreedharan, Debroy panels.

Written by Akhileshwar Sahay |
Updated: April 13, 2015 12:00:18 am
Indian railway, Indian railway system, Indian Railways, Railways, Narendra Modi, Narendra Modi government, Railway Minister Suresh Prabhu , Suresh Prabhu, CAG, Vinod Rai Core of railways ought to be kept intact. One way forward is to convert part of the board into a holding company.

Ever since 42 different railway systems were morphed into one, the Indian Railways (IR) has been haemorrhaging fast. The fabric of the institution may have been ravaged by oft-repeated ailments, including “cultural-statis”, “over-centralisation”, “silo-working”, “internecine-feuds” and “rent-seeking”, but its soul has been trampled upon by its political masters, who treated the railways first as the jagir of the incumbent railway minister and then as dahej to the most raucous coalition partner.

Unsurprisingly, the IR, low on technology and productivity and with scant regard for consumers, is staring at collapse. It has also lost the aura of being the “nation’s lifeline” with dwindling market share — only 30 per cent of freight and 10 per cent of passenger national throughput. The task ahead to reverse the collateral damage and jumpstart revival and reform is enormous. The time starts now.

Fortunately, there is hope in the air. The Narendra Modi government has begun well. And Railway Minister Suresh Prabhu gets credit for taking baby steps, eschewing populism and staying steadfast to his mantra of “delegate, decentralise and deregulate” before “getting longer-term high-quantum lower-cost money to expedite stringing of the nation”. He has also done well to rope in experts to design reform measures. He inherited the Bibek Debroy committee and added the Sreedharan committee (this writer was part of it), and brought in former CAG Vinod Rai. He has also decisively broken through the railway board’s sit-up culture and implemented key recommendations of the Sreedharan committee, including delegating works and stores tenders powers to general managers, delegating estimate approval and directing board members to inspect, inspect and inspect. He has set up an internal committee to fast-track the implementation of the final Sreedharan committee report. Debroy too has submitted an interim report within the timeframe set by Prabhu, who now has to kickstart the tortuous and long-winding reform.

Sreedharan and Debroy had different tasks, but with intersections. Their proposed solutions thus have many common strands. Prabhu must look at these first before tackling the more complex challenges. The Sreedharan and Debroy reports agree that the railway board should set policy, the regulator should regulate and the “railway administration” should freely manage the IR. Both suggest downsizing the unwieldy and bloated board — Sreedharan says by half, and recommends largescale decentralisation and devolution of decision-making powers to GMs and officers in the lower ranks. Both want the IR to exit Kolkata Metro and to eventually exit the suburban rail business or run it as a joint venture with the concerned state.

Both reports insist that only the best and brightest with impeccable integrity be considered for general management positions (DRMs, GMs, and members). Sreedharan insists that the pathological change-resistant work culture has to go first, or else “decentralisation and restructuring will be stillborn”. Debroy echoes the same sentiment in the recommendations summary.

Sreedharan and Debroy differ on many fronts, but none more glaring than on the future of production units. Debroy prefers bundling one special purpose vehicle to subsume all. This has ominous tidings for industrial relations and tax implications. Sreedharan prefers a calibrated and customised approach, which would be better able to address the need to acquire frontier technology to replace the IR’s dated rolling-stock in a complex market where one size does not fit all.

With regard to the Debroy committee, a few recommendations in the interim report, including “accrual-base accounting, rationalising zones and divisions, calibrated exit from non-core areas (schools, colleges and hospitals), in-market competition in freight, need to be implemented. Some unintended bias (possibly because three senior bureaucrats are in the committee) is likely to go when the final report is prepared. The reorganisation of services needs to be discussed widely and the report needs to dive deeper on the mobilisation of resources.

Debroy’s suggestion to split the IR vertically into two — infrastructure and operations — also calls for a wider debate. Such a move will not be the Indian way of reform. America runs and reforms railways the American way, following the regulation-deregulation paradigm. The debt-laden Japanese Railways reformed it the Japanese way using a therapy of vertical integration, horizontal separation and part offering on the exchange. Debroy’s solutions are part Washington Consensus (popularised by the World Bank in the 1990s), part Thatcherite destruction of British Rail with colossal cost and questionable gain, and EU-style vertical-separation.

So, where does one go? There are alternatives, but the core of the IR ought to be kept intact. One possible way forward is to convert part of the railway board into a holding company and morph 17 zonal railways into three or four vertically integrated well-managed entities with the possible unlocking of huge hidden enterprise value.

A final word. The much-maligned IR carries India rather well. It is ailing, but the treatment must not kill the patient.

The writer is a former IRAS (Indian Railway Accounts Service) officer.

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