Indian Railways: preparing for another sunrise

The restructuring exercise, which has the advantage of learning from the lessons abroad, will have to address the core issue of the form of existence that the Indian Railways is to adopt in the years ahead, says V. S. SAMBANDAN.

``Indian Railways is one of the most studied institutions on the planet. For almost every conceivable question that can be asked, there already exists a comprehensive and vigorous report that lays out the facts and indicates the answers. What is striking, however, is that there has been little action on the many reports that IR has commissioned, both internal and external.''

-- The Indian Railways Report: 2001.

THE RAKESH Mohan Committee report on Railways, (the Expert Group on Indian Railways) has made yet another effort to identify the issues ahead as well as to suggest measures for a revival of the country's rail system.

Set up against the backdrop of declining railway finances, the committee has suggested a multi-phase restructuring plan for putting the IR back on the track to sustainable performance. The five-year, three-phase plan has laid emphasis on ``ensuring that an appropriate environment is created by setting up necessary institutions and legislative frameworks.'' An underlying concept has been that with corporatisation, the Railways should focus on core businesses.

The Indian restructuring exercise, which has the advantage of learning from the lessons abroad, will have to address the core issue of the form of existence that the IR is to adopt in the years ahead. Clearly evident is that if it has to continue in its present form, that of an organisation running under a single management, the system would have to go through either a large- scale repair or would have to re-invent itself.

The key recommendations of the Rakesh Mohan Committee focus on correcting the causes that have taken the Railways on the downward track. The Indian railway system has been especially burdened since the 1990s because of two broad reasons. The first is the internal distortions and the second is the impact of the larger re-structuring that the Indian economy has been going through. The consequent slide in the finances, which is reflected in the increasingly adverse operating ratio of the IR, has also come in a situation of lower financial dependence on the Government.

Impending financial crisis

Commenting on the declining financial situation is not in the best interest of the IR, the committee says, ``the loss of market share in the profitable freight business, lack of flexibility in pricing, high cost of internally sourced products and services together with investments in unremunerative projects have meant that the rate of growth in revenues has been outstripped by the rate of increase in costs.'' While revenues have been growing at the rate of 13 per cent per annum between March 1988 and 1998, ``costs too have grown at the rate of 13 per cent per annum during this period. However, during the past five years, there has been a sharp deterioration with costs growing faster than revenues.

Yet another important cause has been rising wage expenditure. ``Rising employee costs, poor productivity and declining budgetary support have compounded the problem.'' Pointing out that staff costs, which account for about 50 per cent of the costs, have been growing the fastest, the committee observes that ``the relatively low levels of employee productivity compound the problems of having a large workforce.''

It is against this backdrop that the committee has called for changes that run through the entire gamut of its operations. These could be classified under three broad priority areas: institutional separation of roles, differentiation between social obligations and performance imperatives, and the need to create a leadership team committed to and capable of re-defining the status quo.

At present, the IR as an omnibus organisation performs several functions -- that of a policymaker, transport service provider and regulator -- all rolled into one.

Stressing the need to separate these roles, into policy, regulatory and management functions, the committee has observed, ``currently these roles are blurred which causes confusion about the underlying vision and mission of IR.

Until such time as the fundamental purpose and governance of railways in India is made clear, the root cause of most of IR's problems will not have been addressed.''

Painting a futuristic scenario, the report adds, ``ten years from now there will be multiple owners, multiple funders, multiple customers and multiple managers.'' On the implications of the separation of roles, it says, ``Institutional separation of roles will mean that policymakers are limited to setting policy (and paying for what they ask for); regulators fix competition rules in general and pricing in particular; management manage and are measured against clear performance indicators.''

The low compensation the IR receives for its social obligations have for long been a cause for angst among railway policymakers. Commenting on the situation, the report says, ``there is no shadow of doubt that the social obligations pressure has increased substantially in the past decade. The problem is that the increased pressure to carry out social obligations is not backed by an increase in funding. In other words, Parliament is demanding more and giving less. IR calculates that the annual `social obligation' cost is about Rs. 4,000 crores for which it receives only Rs. 800 crores as compensation. The situation is wholly unsustainable and risks draining the livelihood from the heart of the business.''

For the Railways to overcome the present crisis and take the track to success, a comprehensive plan has been suggested, which includes transforming the organisation into an Indian Railways Corporation, which will ``be responsible for managing railway assets and resources.''

The extent to which the recommendations of the latest committee to study the railways will largely depend on the initiatives taken from now. It is a tall task, which requires sensitive handling.

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