High time Railways changed tracks

Raghu Dayal | Updated on August 01, 2019

Caught in a low growth trap, the organisation must revamp its structure rather than be content with business as usual

The 2019-20 Budget for the Indian Railways (IR) indicates no light at the end of the tunnel. Recall the 2016-17 Rail Budget charting the railways’ road-map: time-tabled freight trains running with credible service guarantees; reserved accommodation on passenger trains available on demand; average speed of freight trains to rise to 50 km/h (from 23.70 km/h) and of Mail/Express trains to 80 km/h (from around 60 km/h); and semi-high speed trains running along the golden quadrilateral.

Little of all this has happened. A general popular perception endures — of the Indian Railways looking adrift, with its continuing tepid growth trajectory. Its core business — freight as well as passenger carriage — has constantly lost market share; its finances remain dreary. The IR’s passenger ridership has almost been stagnant. The freight front appears not much different: the current year is expected to close with freight throughput up by 4.8 per cent, but a fall of 0.3 per cent in tonne kilometres.

The IR has been living beyond its means. In what now looks to be a familiar pattern, it resorts to considerable window dressing to register a somewhat less alarming operating ratio (OR), a measure of its financial health. Its OR for 2017-18 was firmed up at 98.4 per cent and pegged at 92.8 per cent for 2018-19, which has now been revised to 96.2 per cent. The 95 per cent OR budgeted for FY20, nowhere a healthy mark, raises apprehensions of the IR’s sustainability.

Private investment

The 2019-20 budgeted estimates peg the IR’s total outlay on capital account at ₹1,60,175.64 crore, highest ever for a year, that includes ₹65,837 crore by way of budgetary support, ₹10,500 crore from internal resources, and ₹83,571 crore from extra budgetary sources. Against the actual capital expenditure of ₹1,01,985.47 crore in 2017-18, the revised estimates for capital expenditure in 2018-19 aggregate to ₹1,38,857.52 crore.

Amidst a flurry of huge investment outlays outlined for railways, there is a palpable unease among several experts, even rail executives, who, although convinced of the need to substantially strengthen and restructure the network and its services, feel a push will worsen its already rising debt burden.

Like on numerous previous occasions, the FY20 Union Budget pins hope for substantial PPP contribution to the estimated railways’ investment of ₹50 lakh crore during 2018-2030. The IR needs to do a candid appraisal of why similar overtures to garner PPP investments have come a cropper.

The railways’ misconceived public service obligation along with stubborn attachment to its departmental character is antithetical to a business ethos. With railway project investments being lumpy and of long gestation, private investors look for appropriate safeguards in management and operation.

The IR has done precious little to rid it of a clear conflict of interest inherent in the Railway Board being policymaker, regulator, and also operator.

For railways, the future threats are plainly visible. On the passenger side, the IR faces severe competition from a rapidly evolving aviation sector, new style, high-capacity buses; for freight, high capacity trucks carrying goods door-to-door and a fast expanding highways network have speeded up efficiencies in road travel.

Hamstrung by the crushing weight of passenger cross-subsidisation, the railways has out-priced itself in the vital freight sector. Let the IR glance through the Railway Budgets 1964-65, 1965-66 and 1968-69 to comprehend how it has frittered away its own pioneering initiatives of fifty years ago.

Not only did the IR then develop the Rajdhani Express, then a harbinger of ‘high speed’ rail travel; it demonstrated commendable customer-centric approach, introduced express goods services running on publicly advertised time schedules, as well as door-to-door ‘domestic’ container services between selected cities.

Optimising services

When railways across the globe are grappling with macroeconomic changes, not being able to rely on staple flows — of coal, steel, petrochemicals, for example — it is imperative for the IR to reorient its freight transportation strategy. It needs to calibrate its services to create critical mass of piecemeal wagons/containers, in partnership with other players, for timetabled multimodal logistics services end-to-end.

Its passenger services have likewise to stride ahead with faster, comfortable and punctual inter-city services. Among a daily average of over 13,300 passenger trains that the IR operates, there are 4,700 short-distance stopping ‘regional’ trains, including those serving towns by ferrying commuters to/from expanding cities and metros.

The ‘regional’ services contribute the maximum loss in passenger business and consume a substantial portion of scarce movement capacity; they should better be managed by an autonomous corporate entity under the IR umbrella. It will coordinate better with respective State government authorities and provide for multi-modal transport. In her Budget speech, the Finance Minister suggested that the railways “be encouraged to invest more in suburban railways through Special Purpose Vehicle (SPV) structures”.

Railways will do well to carry the message further. While acknowledging the declining incidence of train accidents, the IR needs to assiduously address the unremitting incidence of asset failures which signify serious potential hazards, eroding its productivity and reliability.

As many as 5,391 track failures, 24,147 locomotive failures, 3,882 bad order wagons and 1,775 passenger coaches, besides 2,759 overhead electric wire defects, and 114,368 signal failures in 2018-19 must simply be unacceptable. It calls for an abiding crusade towards a ‘zero defect’ and ‘zero failure’ culture across the system.


Focus on efficiency

The IR’s ills are as multifarious as they are well known. It is essential to immediately start implementing, with firm timelines, the oft-repeated suggestions such as rationalising the passenger fares and freight prices, devising broad lines of business, segregating freight and passenger businesses, corporatising its production units and construction infrastructure, cutting management layers and the headcount, and restructuring the top management.

The IR’s management structure has been compartmentalised, leading to departmental empire-building, rendering it obese and extortionist.

The apex management pyramid has been made inconsistent with railways’ primary function — production, marketing and operation of transport services.

The bigger the organisation grows, the more it tends to add. Soon salaries and pensions will swallow three-fourths of IR’s working expenses budget. It inducts newer technologies and outsources myriad activities and services, but its permanent cadres shrink little. The IR prides in its ‘biggest recruitment exercise’ to hire hundreds of thousand additional employees. It needs to deftly address inefficiencies, first in the Kafkaesque Rail Bhawan, then right across the sprawling system.

The Bibek Debroy Committee found that “the IR’s efficiency was better with nine zones than with 16”. It needs to consider streamlining its traditional four-tiered organisation of the “steam age” into a three-tiered system, as the Chinese Railways did in 2005, by abolishing its 44 sub-regional entities (equivalent of the IR’s 68 Divisions). If required, the IR may thereafter re-draw the geographical areas of its 16 zonal administrations.

The IR is too vital to be allowed to falter. Being complacent about the vulnerability of its traditional model and structure can be fatal.

The writer is former CMD, Concor

Published on August 01, 2019

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