Saturday, January 23, 2016

Only a detailed study on the failure of the Railways' carrot-and-stick policy to speed up project execution in 2015-16 may yield some interesting insights. This in turn may help to restructure the organisation

Ramakrishnan T S January 23, 2016 

It has been reported that Railway Minister Suresh Prabhuhas asked members of the Railway Board (RB) for suggestions within 15 days on how the board needs to be restructured. His letter came in the backdrop of his dissatisfaction with the RB and associated functional departments for not having generated additional revenues from non-fare collections.

There are at least three well-known dimensions to the problem of disoriented functioning of Indian Railways (IR) in general and the RB in particular. The first is that the Board has been vested simultaneously with policy making, management of infrastructure, rolling stock and production units of IR, execution of projects, regulation and other functions. In January 2015, the Railways Ministry came up with a concept paper on the Rail Development Authority of India (RDAI), envisioning the latter as an independent body mandated to protect the interests of various stakeholders, promote competition and prevent market domination in order to attract private investments, tariff determination, providing a level playing field for private investors, setting performance standards and improving efficiency of railway operations. Although this move did not make the RB function like a corporate board as envisaged by the Bibek Debroy Committee, and a policy decision was left to the ministry, a good beginning was made in delinking the RB from performing regulatory functions.

The second dimension is departmentalism, where each department acts in a silo. This issue is not new. Many committees, including the recent Bibek Debroy Committee, dealt with the issue and recommended implementable measures to reduce departmentalism.

The third is too much centralisation, leading to delays in decision making. There are seven positions of RB members and a dozen general managers. Most of the decision making and financial powers lie with the RB and a few more top officials, and every class one officer aspires to become a member of the board or a general manager, however short their tenure. Given such a steep pyramid and given the fact that long tenures for top officials would affect the aspirations of hundreds of class one officers, the question of appointing a team of chairman and RB members for tenures of three years to make an impact on the administration would face stiff opposition from class one officers. The average tenure of the RB chairman from 1950 to 2015 was about 19 months. Moreover, the board team changes as and when some members retire and new members join. With such a short tenure, it is hardly possible for the top-most officials of IR to draw up an action plan, let alone set targets for the next couple of years.

The three dimensions are disorienting the functioning of IR. Only after the appointment of the current railway minister, in November 2014, were the decision making and financial powers partly decentralised to the zonal railways and production units. In addition, the minister also announced incentives for completion of projects in time, with a cap of two per cent of the project cost. Failure to meet deadlines would invite adverse comments in annual confidential reports. The ministry of finance (MoF) also made it clear in March 2015 that not more than 33 per cent of the budgetary support should be spent in the last quarter, indicating that departments should draw up clear plans and processes for execution at the beginning of each financial year.

Given this incentive structure, many, including the railway minister, may have expected that teams entrusted with the execution of railway projects would be incentivised. Surprisingly, capital expenditure in the first two quarters of 2014-15 and 2015-16 was Rs 27,469 crore and Rs 26,266 crore respectively, indicating that capex did not pick up even with the carrot-and-stick policy. There was no improvement in the third quarter, too. Although the MoF had announced budgetary support of Rs 40,000 crore for IR in 2015-16, following the slow pace of project execution by IR in the first three quarters, MoF withdrew Rs 12,000 crore from this allocation.

There could be one or more reasons for the slow pace of capex. The incentive scheme may be vague and may not come into effect due to procedural delays. The existing framework used for capex may not facilitate faster execution of projects and reformulating them may require higher levels of effort, time and energy that may not be commensurate with the incentive. As O&M and capex are assigned to the same set of officials, the officials may be busy fire-fighting on day-to-day O&M issues, placing capex on the backburner. The execution team may lack esprit de corps. Even a few free-riders in a team could discourage the active members of the team from executing projects faster. Also, the existing remunerative structure of officials may be too cosy for them to try new challenges.

After just one year of the carrot-and-stick policy, it is too early to say whether IR suffers from serious organisational culture and human resource management issues. There is a general perception that the cracks in IR's functioning are confined to the top (the Railway Board). However, it appears that there are cracks right down the line. Only a detailed study on the failure of the Railways' carrot-and-stick policy to speed up project execution in 2015-16 may yield some interesting insights. This in turn may help to restructure the organisation.

The writer has a PhD in Public Systems from IIM Ahmedabad. These views are persona


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