Finance Minister Arun Jaitley slipped in two big steps concerning the Indian Railways during the Union Budget 2017 speech. He announced that the Indian Railway Catering and Tourism Corporation (IRCTC) and the Indian Railway Construction Company Limited (IRCON) will be listed on the bourses. Interestingly, IRCON International, as it is called, is already listed, but suffers from the typical public sector listing problem of not enough shares being disinvested making the stock illiquid.
IRCTC controls all the digital ticketing operations of Indian Railways, and post demonetisation has seen a 10 percentage point increase in the number of tickets booked online, from 58 percent to 68 percent, a substantial jump. It’s also a company that holds the world record for the maximum number of tickets booked online in a single day, at over 1.3 million.
IRCON is a 41 year-old company that has managed and executed large ticket infrastructure and railway projects across the world, from Afghanistan to Malaysia. It has annual revenues of $190 million.
Jaitley’s announcement to list both the companies in the bourses is not as much about the robustness of the two companies, as it’s about freeing the Indian railways to focus on its core task of providing high quality travel experience to passengers, achieve global standards of safety and refocus its financial resources towards capital expenditure and fleet expansion. The finance minister’s announcement has three potential transformative implications.
First, the autonomy given to the two companies to get into the market allows them to bring in much needed financial and non-financial resources in order to turn themselves into completely professional outfits that could bid for big ticketing and contracts with the best in India and going forward in the world. This is true especially for IRCTC, which has the potential to develop its tourism and catering operations on the back of the Special Purpose Vehicles (SPVs) for Tourism Zones announced by Jaitley in his budget speech. An efficient, innovative and energized IRCTC can take the battle to the airlines and their flash pricing and cheap tickets.
There are two reasons for such optimism. The first is the experience of China which decoupled several ancillary units associated with its railways system as part of a large scale reform two decades ago. The results are there for all to see, with the Chinese infrastructure, rake, signaling and engine companies successfully bidding for some of the biggest projects in the world. The second is closer home and is an Indian experience. The manner in which the ONGC Videsh Limited has done creditably around the world, on the back a freedom that comes from listing, acquiring key oil and natural gas assets for energy security is a model that can be followed by IRCON.Secopmn
Second, Union Railway Minister Suresh Prabhu has been quite clear about making the Indian Railways ‘asset light’. Decoupling ancillary units, or those operations that are not the core of the Indian Railways, is critically necessary for rebalancing the fiscal health of what is still India’s lifeline. An ‘asset light’ railways would be able to restructure its debt, approach multilateral institutions for loans at soft rates, bring in private participation and attract global majors to collaborate for some of the major freight and passenger projects. Again, China is a good place to look at, and much of the international cooperation that China was able to attract, right from the transfer of technology by Bombardier for the Chinese to locally manufacture bullet trains to Maglev, took place on the back of making the Chinese railways focused and lean and fiscally strong.
Third, this move will benefit the common man. It’s never a good practice for one holding company, in this case the Indian Railways, to occupy every part of the value chain. Such an occupation results in a near monopoly situation where the customer doesn’t have a choice, and consequently does not have a voice. The in-built system of checks and balances that comes from market-led diversity and leads to higher quality, customer satisfaction and better levels of safety is bound to come in as the Indian Railways starts disengaging itself from non-core activities.