A change of track

The Bibek Debroy panel on reform of Indian Railways (IR) has set the cat among the pigeons. There is no denying that the railways, a far more energy-efficient carrier of goods than road transport, must recover some of the ground it has lost to the latter since the late nineties. But to do so, it has to deliver both goods and people in a more cost-effective, safe and quick way than it does now. This calls for a thoroughgoing organisational revamp. The report has been bold — some would say brash — in advocating this and it is essential that the political class engage with its recommendations with a view to taking the railways forward, rather than whinge — unjustifiably — that they amount to no more than selling it lock, stock and barrel. A noteworthy suggestion is to create an independent regulator to fix rail fares, moving this function out of the ambit of populist politics. The recommendation to split up the railways into two units — infrastructure and track, and another that operates trains — is in line with what predominantly state-owned systems in France, Germany and China have. The issue here is not “privatisation”; it is whether the advantages of creating such verticals will unleash efficiencies that outweigh the synergies of running all operations under a single umbrella. The report is right in stressing that an independent regulator, accountable to Parliament, should be the first step forward. Right now, the railways needs autonomy more than it needs anything else.

The Debroy report calls for greater private involvement in non-core activities such as production and construction, perhaps drawing from China’s JV experience. Private entry into running freight and passenger trains in competition with railways may spur efficiency, but regulatory wrangles of the sort seen in the UK, Germany and France should be avoided. There has been a constant refrain in the UK over private operators gaming the system, with a lot of hidden subsidies going their way. The panel’s recommendations on parcelling out power and responsibility to the zones are unexceptionable. But in emphasising right sizing, it seems to have overlooked a crucial observation of the Anil Kakodkar report that one lakh posts related to safety lie vacant. This includes 16,000 loco drivers, all of which explains the ‘human error’ in accidents.

While the emphasis on making the railways lean and accountable cannot be faulted, efficiency cannot be measured by earnings alone. Railway investments translate into returns for other sectors, even if they take two decades or more to recover the cost. Therefore, the report’s over-emphasis on commercial accounting principles and ‘internal rate of return’ can prove counterproductive. The railways’ principal role is not to make money for itself, but to lubricate the wheels of the entire economy.

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