Railway and reforms

The process of reforms in the Railways is complex and can disrupt a reasonably well-functioning system, with serious consequences(result) for the economy

“Why can’t a woman be more like a man?” The exasperated(greatly annoyed)cry of Professor Higgins in the delightful Hollywood musical of the sixties based on George Bernard Shaw’s play “Pygmalion” may seem an unusual beginning for an article on the Railways. But it may seem less incongruous(Lacking in harmony) when juxtaposed(Placed side by side often for comparison) with similar cries of despair(A state in which all hope is post): “Why can’t the Indian Railways be more (efficient) like a private company or corporation?” The subject of reform is certainly on everyone’s mind. The presentation of the Railway budget this week will be awaited with greater anticipation than usual for a few special reasons: it will be the first full rail budget after a new “reform-oriented” government assumed charge at the Centre, it will be the first budget for a new Railway Minister with a reputation for reform, and it will be presented against the backdrop of the deliberations of yet another ‘High Powered” (Bibek Debroy) Committee that is after that seemingly endless quest: How to ‘reform’ the Railways?

The sheer(absolute) number of reports and policy prescriptions that have emerged over the last few decades as to what ails the Indian Railways and what needs to be done to set things right should make one wonder why nothing substantial is being done to change things if the remedies(cure) are so obvious. Clearly the problems lie with the implementation of those recommendations.

Reforms

Reform is not an end in itself but a means to achieve certain clear objectives. In the case of the Indian Railways, reforms are aimed at ensuring adequate investments in a vital infrastructure sector for achieving a growth rate that keeps ahead of the economy as a whole, while providing quality transport service at minimum cost to society. For achieving these objectives, reforms can be classified broadly as those relating to its finances and those concerning its organisational structure. Some measures no doubt overlap.

Reforms imply change. It is human nature to resist change. In the case of the Railways, reforms, or even the mere intention to reform, can invite severe backlash from those within the system who see an existential threat in any such move. Further, changes to the organisational structure, apart from internal resistance, can disrupt an already functioning system during the transition period that can have serious consequences to the economy. The path is unclear; the outcome uncertain. A few examples will bring out the complexities involved.

A reform measure suggested in the past by more than one committee to tone up the Railways’s finances is to unbundle “non-core” activities such as health care and manufacture of rolling stock (mostly locomotives and coaches). Without entering into a debate on the pros and cons of the present arrangement, what needs stressing is that these two activities between them employ about one lakh personnel out of a total strength of about 13.1 lakh. Any such move will be stoutly(in a resolute manner) replying to his resisted by the employees.

A peculiar(unique) feature of the Railways is that unlike a commercial undertaking, the salary levels of the employees are not fixed in relation to the earning potential of the organisation, but by an extraneous agency instead. The Central Pay Commission sets the pay scales of all central government employees every 10 years. Further, in the case of the Railways, the pension liabilities are met out of its own earnings and not from the Consolidated Fund of India, as in the case of the other Ministries. On the other hand, on the revenues front, the constraints in having a remunerative(paying) pricing for passenger traffic are too well known to require reiteration. Cross subsidisation through freight traffic earnings has its limits as, beyond a point, higher freight(cargo) tariffs can become counterproductive by driving away traffic. Internal resource generation is affected. This decadal shock treatment by the Pay Commission is inevitable so long as the Railways remain an undertaking under the Central government with civil service status for its employees. Any change in this status will be resisted by the employees.

Converting the Indian Railways into a government-owned corporation is a reform measure that was suggested by the Rakesh Mohan Committee (2001), mainly as a means to attract private investment and to streamline its functioning. Another advantage claimed in favour of this measure is that it keeps the organisation at ‘arm’s length’ from the government, leading to greater functional autonomy. But mere corporatisation without intra-sector competition will be a cosmetic exercise. Besides, even with competition, in the Indian context, it would seem that the length of the ‘arm ‘is very short and is subject to considerable twisting (as in the case of Air India.) Introducing intra-sector competition further complicates the process, as in the case of that controversial ‘P’ word: ‘privatisation’.

The question of privatisation

There is no bigger controversial and emotionally charged subject associated with reforms in the Railways than the ‘P’ word. The arguments at both ends of the spectrum are often ideologically driven, dogmatic(narrow) and ill-informed. The issue has been resolved to some extent by the recent unequivocal declaration by the Prime Minister that the Railways will not be privatised. But saying that the Railways will not be privatised is not to say that railway operations in India will not be thrown open to the private sector at some future date. What are the implications?

The incentives that drive the private sector, positive and negative, are the profit motive on the one hand and the existential threat of going out of business on the other. But privatisation without competition will degenerate into an oligopoly. To introduce an element of competition in rail operations, it will be necessary to separate the ownership and the management of infrastructure (track, signalling, stations, etc.) from train operations to allow either multiple operators to access the same track (route) or to have a system of franchise for particular routes.

Thus the entry of private players in railway operations along with a government-owned entity requires a fundamental reorganisation of the Railways. It is not about change of ownership alone, unlike many other sectors. Problems of coordination escalate to another level of complexity. The bureaucratic state will be replaced by the contract state. Effective regulation becomes critical and so also the speedy resolution of disputes that are bound to arise from time to time. The limited experience of the Railways so far in executing projects in the PPP mode has not been without its share of problems.

Adding to all this is the reality peculiar to this country: the political establishment across the spectrum, whether in power or outside, is loath(unwilling) to let go of some measure of control over a crucial infrastructure sector that is seen as a vote garnering(earning) machine.

It should now be obvious why there has not been any movement towards significant ‘reforms’ in the Railways. The process is complex, can invite severe staff backlash and can disrupt a reasonably well-functioning system, with serious consequences for the economy. Further the process is rife with uncertainty and can test the commitment and perseverance of any government, even one with a comfortable majority in Parliament. Significant reforms also need a modicum(small) of consensus among all stake holders including the political establishment and cannot be rammed(force) down from above through executive fiats and diktats. More committees are certainly not the answer.