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Does privatisation provide the answer?

The most glaring example of populist profligacy indulged in by successive leaders was the adoption of the unigauge policy without any techno-economic appraisal.

THE RAILWAY Minister has announced that the Ministry would offer unremunerative branch lines for private participation. It is difficult to comprehend how such lines could be made remunerative by private participation. As there is little or no traffic moving on such sections, private participation cannot possibly generate traffic, either in freight or in the passenger segment, to make the lines viable. It is, perhaps, a measure of desperation that has gripped the Railways and the Government. The Railways has to be blamed for this plight due to various acts of commission in the last decade. But there is a silver lining. The present leadership has displayed a welcome keenness to listen and learn.

The most glaring example of populist profligacy indulged in by successive leaders was the adoption of the unigauge policy without any techno-economic appraisal. To quote from an article by this writer in The Hindu dated January 27, 1994, "Conversion of the entire metre gauge network would involve an outlay of Rs. 14,000 crores at 1990-91 prices. With the non-availability of budgetary support and the need to borrow funds from the open market at 16 per cent this would entail a repayment obligation of Rs. 2,240 crores as interest. The total gross earnings and expenditure on the metre gauge in 1990-91 were Rs. 1,299 crores and Rs. 2,207 crores respectively. It is, thus, obvious that the level of traffic moving on the metre gauge does not help meet even the interest obligations not to speak of the other expenses.'' Responding to an article on similar lines by this writer that appeared in an economic daily five years ago, the then Railway Minister, Madhav Rao Scindia, wrote a letter to this author stating, "I am of the considered opinion that the pursuit of unigauge at the cost of important safety works such as track renewal, signalling and telecommunications and modernisation would be suicidal in the long run. In fact, when unigauge was adopted as the Railways mantra, my reaction was "God help the person who becomes the Railway Minister five years down the line.'' While the macro analysis is clear enough a concrete example is even more revealing. The railway line between Gunda road and Kottur, 18 km in length was converted into broad gauge at a cost of Rs.12 crores five years ago. No traffic was expected to move on this route. None, indeed, has. This is a good example of yet another uneconomic line in which private participation will, probably, be solicited. We are now reaping the dividends. Other wasteful schemes were the creation of a large number of posts of sweepers to provide employment, formation of additional zones not warranted by consideration of operation or administration, creation of additional divisions and construction of new lines on extraneous considerations.

The Rakesh Mohan Committee has come up with some good suggestions, but the Minister and the board have to take cognisance of the limitations of the report and make allowances for the fact that it is a report by a committee that is not going to implement its own recommendations and has displayed a tendency to oversimplify a complex problem. The committee's suggestion of corporatisation as an essential prelude to any attempt at rescue cannot be accepted at face value in the light of the failure of many corporations to deliver the goods. For example, the Konkan Railway Corporation has built a magnificent line, but, on account of the huge repayment obligations on the debt incurred by it, can never be financially viable and will for ever remain a white elephant. The total debt to be serviced is Rs. 4,000 crores in the next seven years.

The committee has recommended that second class ordinary fares be raised by about 10 per cent on a continuous basis for five years assuming 6 per cent annual inflation. The recommended increase in upper class fares, however, is just 1 to 2 per cent. While strongly denouncing cross subsidisation to benefit the ordinary second class passengers, the Rakesh Mohan Committee has ignored the heavy cross subsidisation of freight rates designed to benefit commodities such as coal and other raw materials required by industries. Is it because the third class passengers were not represented in the composition of the RMC? Heavy investment to increase rail capacity has been recommended. The quantum of investment in the next 15 years is to be of the order of Rs. 200,000 crores, much of the investment will be finance through market borrowings. At the same time, the committee expects the Railways to quote competitive rates for freight traffic, notwithstanding the huge repayment obligations on massive loans. How are we sure that the Railways will not go the way of Konkan Rail?

As for the panel's suggestion that the Railways should be converted into a corporation, the present set-up the political leadership is advised directly by the Railway technocrats. The insertion of an intermediary, either from the IAS cadre, who is considered omniscient and move from milk to oil and the Railways at will, or any other group will not insulate the Railway from populism. A railway technocrat is exposed to political pressures only in the evening of his career and is more likely to withstand pressures than one trained from infancy to bend to survive. Further, senior railway officials above the rank of joint secretary now enjoy some immunity from prosecution without the permission of the Government. In a corporation even honest officials will tend to avoid delay, delegate or pass up cases for fear of harassment by the CBI. This is already happening in the Defence services.

Corporations also have to pay income and other taxes, which will be substantially more than the dividend to general revenues now paid by the Railways. The Railways is a public utility too precious to be exposed to the tender mercies of market forces. And should not be constrained by funds beyond a limit. A private railway system or even a corporation will aim at profits more than national interests. Obviously, it is easier to recommend than implement.

The following suggestions deserve to be considered by the Ministry of Railways.

The recommendations of the Rakesh Mohan Committee can be implemented even in the present set-up without converting the Railways into a corporation. Based on the disastrous policies followed in the 1990s, it is essential that the Ministry should exhibit courage and scrap the populist schemes already introduced. The Honourable Minister should scrap all projects of gauge conversion not yet completed except those that are justified on the basis of a techno-economic survey. For example, the Gonda-Barabanki section can get relief, if an alternative route is opened by converting the Manakpur-Katra section to broad gauge, completing the bridge across the river Sarayu connecting Ayodhya. This will serve as an alterative route to Lucknow. Roupsa-Baripada is a deadend and will never be a viable line. These are only illustrations.

With the IT revolution, there is no need for so many additional zones. Most new zones serve no purpose and should be scrapped. This move will also lead to substantial saving in expenditure. Zonal general managers should be empowered to quote concessional rates for passengers and freight traffic on sections where this could lead to more traffic. The existing rules should be liberalised enabling lower rates being quoted on marginal costing principles. With marginal costs being generally about 25 per cent of total cost, there is plenty of scope to enhance revenues from trains already running. Off-season discounts, empty direction discounts on traffic that could be loaded in wagons and coaches moving empty are not being offered at present. A cell composed of officers of proven integrity should be entrusted with this task. Corruption leads to massive leakages and high costs of projects. The machinery should be tightened to ensure swift and strong action adopting army procedures.

An organisation that has served the nation well for 150 years should not be tinkered with. The baby should not be thrown with the bathwater.

J. Rajagopalachari

(The author is former General Manager, Northern Railway).

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