How can Indian Railways tackle losses? Experts discuss

Last year the arrest of a railway board member after he was caught bribing the minister's nephew just so that he could get a lucrative post as member in charge of giving out railway electricity contracts epitomised the corruption in the system, little has changed since.

As the new Railway Minister takes charge, the task is cut out for him. In this particular department, there are ideological, structural and executive questions that need to be raised and answered. In an interaction to CNBC-TV18, Dinesh Trivedi, former Railway Minister of TMC, SB Ghosh Dastidar, former member traffic at the Railway Board, he has been honoured with the Padma Shri, and Akhileshwar Sahay who was on deputation to Konkan Railway and an expert on the subject, and also an advisor to Delhi Metro project, discuss the issue.

Below is the transcript of the interview

Q: Do you think the time has come to say that we are not running a service, we are not running government, we are running business, is that the first question that Suresh Prabhu has to answer?

Trivedi: Nowhere in the world railway is a business. Railway is a catalyst. Road for instance or river by itself is not a business. They are catalyst to move forward your economy and they are the ones, like railway can make sure that Indian economy grows at the rate of 10 percent for next 10 years without a problem.

Q: Trivedi says it is a social service and it cannot be run as a business, has not been run anywhere. Your answer to that and secondly can it be segregated? You can run 90 percent like freight as a business and run 10 percent as services, is that possible?

Ghosh: Railway is a commercial organisation n nature though it has some social responsibilities also. For most of the part it has to be run on a commercial principle as a business organisation.

Railway ministry is totally different from all other ministries of central government. All other ministries get outright grants, railway earns every penny it spends.

The greatest drag on present railway is its subsidy for passengers which is not coming from the general exchequer but it is cross subsidised from freight to passenger.

Railways freight today is the cheapest in the whole world, cheaper than China, one fourth of China. Its freight is one of the highest only because of this cross subsidisation. As a result the poor people of the country they have to bear the brunt. It is on them indirect taxation because essential commodities they move by railways and they have to pay more for that. India's export products they become costlier and uncompetitive in the world market because of the high freight rate.

Therefore what is needed by Railway is that most of the operations should run on the commercial basis but as Trivedi has correctly pointed out it is an engine for growth for the country. At the beginning of 1950s when we got independence, Indian Railway was much a bigger organisation compared to Chinese railway, now Chinese have surpassed.

Indian railway used to carry 80 percent of freight and only 20 percent used to go by road, now it is just the opposite situation. Why it has happened? It has happened because both central and state governments have literally spent, invested lakh of crore of rupees for development of road. However they have not spent a penny on railways. They don't give a subsidy, they give a budgetary support.

Q: I completely take your point that the gross budgetary support is needed for a large part for the railways which it has been denied.

Ghosh: Gross budgetary support is nothing but a soft loan given to the railways. What railway needs is outright grant for expansion of its network where it cannot be run on a financially viable basis. So, there has to be made two distinctions, majority portion should run on commercial basis and for social development the portion it should be come and run, it should be constructed by public grants that is outright done from the ministry of finance.

Q: What would your views be, is it possible to have targeted subsidies which must straightaway come from the Budget and the rest of it run commercially, is that possible, any views on that?

Sahay: In fact that is what has to be precisely done. Railways have to run on commercial principle. All the subsidies government has to take the responsibility. Railways cannot be made accountable for social obligation. A time has come today when a clear difference has to be made between railways as a commercial organisation and the social obligations. Social obligations become the responsibility of government of India and not Railways.

Second part, if you really look at the construction and development of railways across the globe that will have to become the responsibility of government of India and not the railways because railways is not even in a position to do that.

Q: If you run it commercially, how does Reliance expand, how does Tata Motors expand? From the profits it expands. I take your point that subsidies have to come from the exchequer but for expansion railways can be run in a way to generate surplus?

Sahay: If you look at our entire 12th Five Year Plan it is Rs 5 lakh crore. Look at what China is spending in a year. It is Rs 7 lakh crore. If you have to tale railways to a different level, if you have to complete your dedicated freight corridors, if you have to complete your bullet train projects, if you have to go to the strategic areas railways simply cannot do it on its own. No railway undertaking in India is going to create the type of resources which are required to totally transform railways from the way they are today.

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Q: Has the time come to run Railways something like the banking sector is run? I don’t want the analogy to be taken too far. The department makes policy decisions but a state bank can be made to do social obligations as well like the Jan Dhan is being made mandatory for all banks. So, railways are run as corporates, you corporatize Railways, may be into four corporates, may be into 8 corporates for the various zones and the ministry only makes decisions, may be like the RBI a regulator for the tariffs, is that the way ahead? I am only quoting from the Rakesh Mohan and the Prakash Tandon committees. Is that the way to go?

Trivedi: The problem is I have always told one thing that we have not understood this Kamdhenu guy called the Indian railways. We don’t need anything. We only need to understand the railways, corporatisation, privatisation these are the words used by people who really do not understand railway at the core.

We do not want a situation where it is public sector versus private sector. It is public sector, private sector and the people at large.

Q: I am only asking for a way in which decisions are made quickly and without corruption, what would be the answer?

Trivedi: Corruption can only be tackled with technology. You have a paperless decision making process like a person who has quoted for the tender should know where it is lying as he can just open his computer and understand where is the file lying. So, there is just no need of any kind of a paper transaction and corruption will be gone.

Since we are talking about these things if you need quality then you must understand that this L1 concept in the railways is not going to work. People who do not understand they quote for it, there is L1 and then they are given and then it goes to the courts and your basic whatever is the project cost the cost run is 100-400 times more and the time taken is again instead of two years it is 20-25 years. So, all you have to do is instead of a small little change you have to go through a generational change. To my mind you have to rebuild the entire railway system and in the present scenario the railways system is very robust, the railway board is very robust, don’t try to tinker this too much. Let it be there and all you have to do is just go through the Kakodkar committee report, the Sam Pitroda committee report and Mamata's vision, you don’t need a white paper, green paper, yellow paper. I don’t think it is rocket science. A man on the street also will tell you what is required. It is very easy, don’t go for incremental change go for a generational change.

Q: I still think that under the current department measure and that is what a lot of, I must have spoken to at least 10 ex Railway Board members and chairman before I came to this discussion. Their point is that it has to be corporatized otherwise decisions just don’t get taken quickly, your point?

Ghosh: By corporatisation if you want to make some 16 separate corporations and Indian Railway has to be divided into 16 it will not work because operation is integrated. It has to be unified. It cannot be compared with state banks and many other banks because every banks operation is self sufficient.

Second point is by corporatisation some gain may be there, some defects also may be there. You mentioned about corruption, railway being such a vast organisation, the largest corporation of India, a joint secretary or additional secretary in the ministry can make them dance, not to speak of minister. Here there are 7 secretaries.

Q: Just in a sentence--how should the Railways be reorganised?

Ghosh: What is needed is some rationalisation at board level because there is too much of departmentalism. That is the main bottleneck or bone of contention in the railways. How can that be done? There is a Tandon committee report which talked about merging 2-3 departments like commercial, operating and accounts in one. All the engineering's, mechanical, electrical into rolling stock department and civil and signal telecom in the infrastructure department. That type of thing probably may work much better and is desirable.

Q: Your idea of the best way to organise railways so that decision making is quick, clean and transparent?

Sahay: What you need is a clean break. I call it creative destruction of present railway board and to create something totally new. The day has come when the incremental reforms are not really going to work. Even in 1904 when the railway board was created the secretary of state 1904's dispatch said, “The central idea for creation of Railway Board is that there should be a body of practical businessmen, entrusted with full authority to manage railways in India on commercial principles and free from all non-essential restrictions and inelastic rules.” Today’s Railway Board is a monolith. Railways are running despite railway board and not due to railway board. You cannot think of a railway ministry where you have got more than 80 officers who are joint secretary to government of India and what they do sitting there? The day has come when this Railway Board has to go.

Your first question was whether to corporatize or not to corporatize. Let us look at one thing very clearly, immediately remove all the production units and PSUs from the control of railways, that is the first level of reform. Second level of reform is the main operations of railways you will have to reform gradually, create a small nucleus, break railway board into 3-4 parts. One takes care of operations and maintenance, vertically separate the construction. Railways in its present avatar cannot manage construction. Make a third small unit which becomes part of the railway ministry or a department of the transport ministry and fourth as a safety-cum-tariff regulator. So, Railway Board is gone.

Q: Last word from the minister?

Trivedi: I just want to conclude that please don’t let the railways go the Air India way, that’s it. It is very easy to run this railway system because we have a robust know-how and it can run very efficiently but my caution is hasten but slowly.