Business

Getting the Railways Back on Track

While there are a sprinkling of fresh ideas, Suresh Prabhu should be careful not to repeat the mistakes of the past.

LGD WAP-4 22237 negotiating a gradient. Credit: belurashok/Flickr, CC BY 2.0

While there are some good ideas, Suresh Prabhu should be careful not to repeat mistakes. Credit: belurashok/Flickr, CC BY 2.0

This year’s Railway Budget is an attempt to present a short-term and perspective plan for India’s logistics juggernaut. No aspect has been left untouched.

There are sparklers of fresh thinking like SHRESHTA — a much-awaited initiative for independent railway-specific research and development.  New train services for unreserved passengers is a step in the right direction. This must be juxtaposed with an intelligent tariff structure to deliver benefits of subsidized travel to the more needy passengers, who tend to get edged out by persons who have the ability to pay but, because of the railway’s non discerning tariff policies, get away with deep subsidies that they do not deserve.

The announcement that HSR (high-speed rail) will bring in advancements in technology is welcome. But a single isolated corridor is not likely to give the country much leverage on transfer of technology. A sustainable business model, beyond bilateral funding based HSR procurement is needed to fulfill the prime minister’s directions on the country-wide HSR corridor.

While assembling a slew of initiatives and intents, the Budget speech has blurred the delivery mechanisms proposed while raising doubts on the core priorities of the Railways. For example, raising non-tariff revenues has been a continuous endeavour at the Railways. But a lack of clear national policies on treating land evaluation has held back the success of previous endeavours.

The infusion of capex is certainly a high priority. However, when loans are becoming a significant source of funds, project selection and ruthless due diligence is of extreme importance. There is no scope to entertain any project that generates revenues that are less than its debt repayment liabilities. The track record of the Railways, when it comes to business models sustained by low margins, does not make the transportation system a fit client for commercial loans for projects, no matter how competitive the terms may be.

What jars, however, is the continued obsession with the restructuring of the Railway Board. The multidisciplinary nature of railway infrastructure cannot be wished away. It is also not a hurdle that is in the way of the Railway’s success.

This was amply exhibited in 2005-08, when Railways achieved record physical and financial performance through the cohesive pursuit of a few common objectives such as freight volumes and internal generation. Setting goals and achieving them does not require a new organizational structure.  It in fact reminds me of a report in Bloomberg BusinessWeek regarding a top-end Fortune 500 company, McDonalds. While reviewing their food business model, they ended up unveiling a new structure for the company instead of a customer -led growth strategy. This is exactly the huge, not-so trivial mistake made by the Debroy Committee and also all of their predecessor committees.

The Minister would be well advised to not follow this path. This obsession may also prove to be a major safety risk in future. The current specialization and procedures are well honed to take care of the risks posed in steel wheels on steel rail operations.

Another lack of insight is reflected in the decision to open parcel services to container operators. The Railways is missing a tremendous opportunity to capture a nation-wide express cargo business, by using its own SLR/ Guards Vans in timetabled passenger trains, which touch every corner of a 63,000-km network. By using these vans, the Railways could accrue huge top-line revenues at near-zero incremental cost. On the other hand, efforts that have been made to auction out parcel space in trains has not fetched much revenues. Opening this business to container operators will fetch very nominal increases in revenues and gain little market share.

Raising resources for new investments through state government joint ventures is an old initiative. However due care is needed to select the project bank. Lines to nowhere should not pose a recurring loss on the Railway’s finances. Operating losses could be better handed by proposing that state governments operate these lines and supplement revenues with development-based initiatives such as industrial/residential corridors and local taxes.

R.Sivadasan is a retired Financial Commissioner (Railways) and an ex officio Secretary to Government of India

Featured image credit: Shome Basu