A railway line in Jharkhand, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

Budget 2019: Taking Stock Of Indian Railways, The Last Five Years

BloombergQuintOpinion

Any evaluation is a function of the metric one uses to gauge performance. When one uses the expression ‘Indian railways’, one may mean the present public service provider, or one may mean the entire system, which may or may not be publicly-owned. Let’s call the public service provider IR. Today, IR owns the railway infrastructure and also runs trains. There is a Railway Board and there is a Ministry of Railways. In different countries, railways evolved differently. India’s evolution has been such that the railway infrastructure is integrated, vertically and horizontally. It will be extremely difficult to disentangle and unbundle it. Therefore, I personally think we will continue to have a publicly-owned Indian Railway Infrastructure Corporation.

However, IR will not have exclusive use of this infrastructure.

There will be private operators who run trains, passenger and freight. Today’s Railway Board will be a board only for IR. The Ministry will frame policy for the entire system and a regulator—which IR proposes to call a development authority—will ensure policy and rules of competition are fairly enforced, without discrimination between the public provider and private players.

What I have described is the desired terminal goal and one proceeds towards it incrementally. Let me, therefore, focus on the five key structural reforms that should be part of the evaluation metric.

Progress On Five Key Reforms

First, there should be privatisation. What does one mean by privatisation? It can mean the selling off of public equity in IR, or it can mean free entry of the private sector. The former requires difficult political consensus, the latter is relatively non-controversial. Even in the case of the former, there is a difference between core IR activities and production units. For instance, Burn Standard, an IR wagon manufacturer, is being disinvested. With the latter definition, there is actually free private entry – not just for a variety of services, but also manufacture of wagons, coaches and locomotives, and even running of trains, passenger and freight.

Yes, the policy does allow the private sector to run even passenger trains. There are reasons why the private sector is not interested, such as the lack of paths and tariff issues.
Trains sit on tracks while waiting for a signal to enter Churchgate Station in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)
Trains sit on tracks while waiting for a signal to enter Churchgate Station in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Second, IR has become excessively centralised and decentralisation was required. There has actually been substantial decentralisation of decision-making, to general managers, divisional railway managers and even station superintendents. However, because of problems associated with public sector decision-making in general, there is a reluctance to take decisions, even when decentralisation has occurred.

Third, there was a need to switch to commercial accounting. This has been partially successful. It has been done on a pilot basis in a division, in a zone, and even in a production unit, but hasn’t yet been rolled out throughout the system.

Without proper commercial accounting, I don’t know the rate of return on IR projects.

Fourth, the intended regulator has been whittled down. It should have been set up legislatively, to make it completely independent. But it was proposed to be set up executively, raising question marks about the selection process. The proposed regulator’s powers have also become recommendatory, not mandatory. In fairness, the development authority hasn’t yet been notified.

However, since the development authority hasn’t been notified, fares—both passenger and freight—haven’t been raised/adjusted, except in very ad hoc and fragmentary fashion.
Men purchase railway tickets at Howrah Station in Kolkata. (Photographer: Brent Lewin/Bloomberg)
Men purchase railway tickets at Howrah Station in Kolkata. (Photographer: Brent Lewin/Bloomberg)

Therefore, IR’s losses are still considerable and the operating ratio is in the vicinity of 110. Once the railway budget became part of the union budget, pension liabilities are directly borne by the union government. The tendency to introduce more trains was also curbed. This made IR finances easier to manage. However, investments have been financed by loans and these will eventually have to be repaid.

Fifth, there is the vexed issue of the unification of services, one that has got completely stuck. This will always be difficult retrospectively and should have been attempted prospectively.

Enhancing Capacity

I deliberately focused on the five key structural reforms and not on indicators people often use as metrics. 95 percent of railway passengers travel unreserved. Therefore, for the system as a whole, I am relatively less concerned with Shatabdi and Rajdhani and their respective replacement by Train 18 and Train 20, desirable though those are. Since these are incremental resources from Japan for a specific project, and not normal IR resources that might have been used elsewhere, I am also not that concerned about the bullet train. A few trains (I am no longer talking about bullet trains) may touch peak speeds of 160 or 180 kilometres per hour, but there is a structural problem of creating more capacity, which goes back to the question of resources. IR’s success in garnering non-tariff resources has been limited. Until capacity constraints are eased, average speeds will not increase and freight trains will get short shrift.

For every passenger train IR runs, it has to run half a goods train to make up the losses.
A freight wagon laden with coal, in Chandwa, Jharkhand. (Photographer: Prashanth Vishwanathan/Bloomberg)
A freight wagon laden with coal, in Chandwa, Jharkhand. (Photographer: Prashanth Vishwanathan/Bloomberg)

The freight corridors, which are more or less on schedule and will not be delayed by much, will free up some capacity, though some of the lucrative freight will move away to the freight corridors. In 2019, we will also have the first modern railway stations which will be like airport terminals. Habibganj and Gandhinagar will be the first, but a clutch of others will follow. IR’s safety and punctuality record have also improved considerably. On the other hand, zones have found it hard to shed non-core activities, such as schools and hospitals, and there has been limited success in enticing state governments into joint ventures for suburban services.

Is the average railway station cleaner than what it was five years ago? In all probability, most people will say yes. But is there still quite a bit of filth, if not on the platform, on the tracks and in the area around the station? In all probability, most people will again say yes. There is no contradiction in the two responses. There is incremental improvement and there is a backlog of legacy. IR’s present problems have escalated over several decades and can’t be resolved overnight. The last five years could have accomplished more, but let’s also acknowledge what has been done.

Bibek Debroy chaired the high-powered committee to restructure Indian Railways. He is currently the Chairman of the Economic Advisory Council to the Prime Minister, and a Member of the NITI Aayog. Views are personal.

The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.