Privatisation’ is neither politically feasible nor desirable, as existing efficiencies may be lost
Arecent report about the Prime Minister complimenting the railway minister for his initiatives in ushering in reforms in the Railways has escaped critical notice. The Prime Minister was reportedly referring to the proposal for setting up of a regulatory authority to decide on fares, a proposal to have a separate Railway Planning and Investment Organisation and the launching of seven missions with cross functional teams to take forward objectives such as heavier axle load, higher speeds and safety.
The Budget speech of the Railway Minister was notable for what it did not explicitly state: no change in the basic structure of the Railways as a government-controlled entity, no unbundling of “non- core “activities and nothing about “liberalising”(privatising) railway operations.
The show goes on
Contrary to the fast track approach of the Debroy Committee which recommended opening up of railway operations both passenger and freight, to private players within a wholly impractical time frame of two years, better sense seems to have prevailed. Reform has now been given a new meaning.
A newly anointed political head of the railway ministry usually arrives with a burning zeal to ‘reform’ the seemingly changeless behemoth. But once he/she gets familiar with the gargantuan scale of the operations and the complexity of the system, the enthusiasm soon gets tempered with caution.
Realisation dawns that there are some limits to fundamental change, limits which no “expert” committee will explicitly acknowledge or define viz., the gridlock of politics, the great wall of staff resistance, the quagmire of competition and the absence of an existential crisis. The Railways does not operate in a political vacuum. Almost every issue concerning the Railways stirs up intense passions and inevitably leads to political interventions at various levels.
A restructured entity, removed from the day-to-day control of the government, with a more rigorous financing and accounting regime will upset this cosy arrangement. Therefore, any measures aimed at altering the status quo will be stoutly resisted and will need a broad consensus.
The Railways is home to perhaps to some of the oldest and strongest trade union bodies in the country. Any fundamental restructuring of the Railways will need to have the staff unions fully on board. The alternative is a full-blown confrontation which no government would risk without adequate justification.
So measures such as privatising railway operations and unbundling of the so called non-core activities like rolling stock manufacture and healthcare, and corporatisation with consequent loss of civil service status, all of which are anathema to the unions will be impossible to attempt without risking a major industrial action. Introducing competition by “liberalising” (privatising) railway operations is one of the measures usually suggested to enhance operational efficiency.
This involves two issues: equitable track access and ownership of the infrastructure. For the track access to be equitable to all players, the infrastructure (track, signals, communications network and stations etc) has to be separated organisationally from train operations. This is highly controversial and problematic.
Further, in the Indian context, with the infrastructure almost certainly likely continue to be controlled by the government, one of the operators (the government) will be seen as having an unfair advantage. How far will that be deemed as a ‘level playing field’? Will the regulator be independent and strong enough to sort out the inevitable problems of coordination and equity?
There is yet another, rather intangible factor that inhibits fundamental structural change in the Railways. Many of the railway systems abroad that have been restructured did so since they faced an existential crisis. Sustained political commitment is the first and most important prerequisite to successful restructuring. Past experience around the world shows that this commitment comes only when the railways are in deep financial trouble and their poor performance becomes a political embarrassment.
What is the situation here? For all its ills and perceived shortcomings, the Railways is still one of the few organisations in the country that functions with a reasonable degree of efficiency. And then there is the uncertainty: what if the “reforms” did not produce the intended results and the position deteriorated instead of improving? Are these limits for ever?
Not necessarily; there are a couple of possibilities: one an opportunity in the near future and the other a virtual threat in the medium to long term.
Coal and beyond
The construction of the two Dedicated Freight Corridors (DFCs), one in the western sector linking Mumbai with Delhi and the other on the eastern side between Delhi/Punjab and Kolkata, is perhaps the largest infrastructure project ever undertaken in the country with an estimated investment of about ₹82,000 crore.
These corridors, as the name implies are exclusively for freight traffic, adding about 3,300 km to the existing network of 65,000 km, releasing precious line capacity in the rest of the network. The DFCs are expected to be operational in about 3-4 years. Though an integral part of the Indian Railways network, the DFCs, the construction of which is being undertaken by a PSU under the Ministry of Railways are to be administered as a separate entity.
This presents an opportunity, where the infrastructure is already a separate entity to begin with, to introduce competition by throwing open the operations to multiple players. But the time to engage the political establishment and employees’ organisations is now, three to four years ahead of the expected commissioning of the DFCs. Significantly, the Budget speech of the minister is silent on this issue.
The looming threat
While it is common knowledge that the viability of the Railways is largely dependent on its freight earnings, what is less well-known is that almost 50 per cent of those earnings are generated by transporting the dirtiest fuel on the planet, coal.
The recently concluded Paris Conference on climate change imposes certain targets and time lines for achieving specified reductions in the emission of green house gases by various countries.
Being one of the largest emitters of GHGs, India has a special responsibility. Hypothetically, if tomorrow, an economically viable clean alternative fuel becomes available, most of the coal available in the country can (and should) remain below the ground. That will effectively bankrupt the Railways.
The announcement of the railway minister while presenting the budget that the Railways are already working on ways to garner traffic from the non bulk sector to expand the freight basket and enhance revenues is therefore timely. This is a necessity, not an option.
The change in commodity mix of freight traffic from bulk materials to high value “white goods” could also spur a structural change. Here again, the impending commissioning of the DFCs offers an opportunity. No system is immune to change. However, as explained above, presently there are some limits that circumscribe drastic change in the Railways. The Prime Minister’s remarks are perhaps a tacit acknowledgement of that hard reality.
The writer is a former Member Staff, Railway Board. This article is an edited version of his VCA Padmanabhan Memorial Lecture