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Track changes

Indian Railways should decentralise by using PPPs in a big way.

Written by G Raghuram |
Updated: February 28, 2015 8:07:50 am

Rail budget 2015, Ministry of Railway, Suresh Prabhakar Prabhu

The railway budget presented by Suresh Prabhu was unlike most recent budgets. The financial performance of the Indian Railways was left to an annexure, while the goals, drivers and thrust areas got centre stage. The idea was to drive a five-year agenda, rather than make an annual budget prescription. The underlying principle was that balancing the annual budget should not be the focus, investments that would make the Indian Railways financially sustainable should.

There was a lot of focus on a number of operational details — this might raise the question of why a minister has to worry about these matters, but more of that later. However, Prabhu managed to slip in key strategic directions under thrust areas like transparency and governance initiatives as well as partnerships for development. The much-needed first step towards unbundling policy and regulation came in the resolution to constitute “a mechanism for making regulations, setting performance standards, determining tariffs and adjudicating disputes among licensees/ private partners and the ministry, subject to review in appeal”.

In terms of the vision, in contrast to the earlier proposals of the rail tariff authority, it moves in the right direction, giving more teeth to the regulatory body by making it independent and subject only to a review through an appellate body. Obviously, the lessons from the other infrastructure sectors have been put to good use.

The emphasis on public-private partnerships was also delineated in the railway budget, which announced that the PPP cell was “to be revamped to make it result oriented”, with joint ventures to be set up between states, public-sector undertakings and the private sector. These would be involved in several activities, including the laying of new lines, exploring end-to-end logistics solutions, addressing the scarcity of stations and rolling stock.

While all of the above are welcome thrust areas, the emphasis on unbundling policy and operations is not yet palpable. If one is to give the railway minister the benefit of doubt, it could be said that he is taking it slow, at least in terms of announcements. Perhaps he intends to reach out to the public as well as Indian Railways employees at an emotional level first and then gain trust with the success of phased implementation of PPPs in the new domains of activity. This would make it easier to introduce PPPs in traditional railway operations.

The basic question for the Indian Railways — a question that is faced by any commercial organisation with a social responsibility imposed by the government — is, who decides on the managerial and strategic issues? Should the railway minister be worried about providing water, clean food and a hygienic environment on platforms, or should it be a customer-driven decision, taken at the appropriate levels, preferably in a competitive environment? Should the need to have high-quality loading and unloading facilities to support a multimodal transport environment be driven from the top or by executives at the appropriate levels?

The questions above make it clear that the Indian Railways is an organisation where decision-making has become complicated because of a centralised and hierarchical structure, it is dependent on a strong charismatic leadership which drives, through hierarchy, a customer-oriented response. The problem with this management oxymoron (hierarchy and customer orientation) is that it is not sustainable in the long run.

If we view the budget as a way of engaging Parliament on the Indian Railways then the focus needs to be far more strategic. Debates should centre on more fundamental issues, such as the nature of regulation, including that in safety and security, foreign direct investment, subsidies and “financially” unviable projects undertaken in the national interest.

My most important prescription for the Indian Railways is that it should decentralise by bringing in PPPs in a big way. It is this model that has transformed the telecom sector, and to some extent, the road, airport and power sectors. It is this model that can unleash the tremendous human resource potential that the Indian Railways has, by bringing in value for money.

The writer is professor at  IIM, Ahmedabad, and was a member of the expert group for modernisation of Indian Railways

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