Railways: Why Suresh Needs to Invoke Political Prabhu

Published: 12th April 2015 06:00 AM  |   Last Updated: 11th April 2015 11:26 PM   |  A+A-


The revival of Indian Railways is one of the lynchpins in the strategy of the Modi Sarkar to deliver Achhe Din. The idea is backed by political logic—the Railways connect India and Bharat. It also has sound economic rationale—the Economic Survey reveals increasing railway output by Rs 1, boosts output in the economy by Rs 3.3.

Potential though has rarely served as reason to leverage challenge into opportunity in India’s political economy. Born in colonial times and waylaid in the Mahalanobis era, the Railways has been pauperised by the political subedars of the coalition era.

To appreciate why the Railway Minister needs to invoke the political Prabhu, one only needs to look at the interim report of the Bibek Debroy Committee. In a riveting dissection, the report presents a shocking picture of systemic sloth and designed dysfunction.

The Indian Railways is a case study for “How Not To”! It is a microcosm of all the ills of government ownership and political mismanagement. Such is the magnitude of sloth that the committee wants implementation of recommendations to “vest in the Minister of Railways alone, with an appropriate reporting mechanism to the PMO”.

The scale boggles. So does the inefficiency. The Indian Railways runs 21,000 trains that carry 8.4 billion passengers and over a billion tonnes of freight every year. How well does it do? Its trains move slower than those in pre-war times. The faster mail/express trains move at an average speed of 50 km/hr while freight trains average 25 km/hr. Operations cost 93 paise of every rupee earned. Passengers pay an average of 31.5 paise per km—and contribute just 25 per cent of income—while freight pays 137.5 paise per km.

Believe it or not, the Indian Railways has no template for ascertaining profitability of services. It charts revenues earned from a train but doesn’t track what it costs. The Debroy Committee Report says, “One doesn’t quite know how much a train costs… since one doesn’t know how much a specific train costs, one doesn’t know how much of profits a specific train brings in. This is true of both passenger and freight trains.”

Bottom line: Between 2005 and 2013, gross input costs have grown at 10.9 per cent while net earnings in freight grew at 4.8 per cent and passenger earnings at 2.8 per cent (CAGR-net tonne/km & pass/km). Over 51 paise of traffic receipts goes to fund wages and pension. Ergo, return on capital is barely 7.42 per cent—less than the rate at which the government borrows money.

Look at the organisation. At the top, there is the Railway Board. It formulates policy, administers implementation, and assesses failures. It is manned by 1,107 officers—including seven members, two DGs, a secretary, 16 AMs, 21 advisers, 94 EDs, directors/joint secretaries, deputy directors down to section officers. Structurally, the pyramid boggles the mind. The Railways is divided into 17 zones, each headed by a general manager. Zones are split into divisions—there are 68 divisions. How anything does get decided—or not—is an enigma.

Unsurprisingly, the effect shows. A total of 11,709 projects approved by the Railway Board—with a cost to completion of Rs 4.94 lakh crore—is yet in process. Seven years after it was decided to bring FDI in manufacture of locomotives, the projects in Madhepura and Marhura are

languishing. New projects and trains are cleared not on viability but political desirability.

There is then the alphabet soup of PSUs/companies—RITES, IRCON, BSCL, BCL, BWEL, CRIS, IRFC, CONCOR, KRCL, MRVC, RCIL, IRCTC, PRCL, RVNL, RLDA and DFCCIL. The Indian Railways is virtually a do-it-yourself addict. It makes wagons, forges wheels, builds coaches, manufactures electrical units, bottles water etc. DIY was a necessity once, to cope with “market failure”. But what explains persisting with it in the age of outsourcing and credit-backed just-in-time supplies?

The seventh largest employer in the world, the Railways also run 168 schools—educating 27,000 children of its employees and 38,000 of others —and 125 hospitals as also 586 health units, employing 2,597 medical officers and 54,000 paramedics. Add security—57,000 RPF personnel and the cost of funding states for GRP.

The Debroy Committee has dealt with the issues and prescribed viable solutions. It has recommended: decentralisation, commercial accounting, cleaner sharing of social costs between Railways and state and Union Government, splitting of policy, regulation and operations, a new cast for the board, a railway regulatory authority, an SPV to host all the PSUs, bifurcation of infrastructure and services, corporatisation, liberalisation to enable private players, service standards, shifting of suburban and metro to state governments as JVs etc. It has also given a time-frame for the migration.

All this is good. The danger is that governments tend to cherry-pick convenient solutions. Since 1947, there have been 20 committees—11 since 2001. Many of these issues have been “solved” by past committees. As many as 144 recommendations by earlier committees languish—in process or on shelves. There is no room for another committee.

The transformation of the Railways demands political will and divine intervention.

Shankkar Aiyar is the author of  Accidental India: A History of the Nation’s Passage through Crisis and Change


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