Progress must be made to corporatise railways: Rakesh Mohan

In a Q&A, senior fellow, Jackson Institute for Global Affairs, says govt has not clarified how it will make railways more efficient

Udit Misra | New Delhi October 4, 2016

Rakesh Mohan

Rakesh Mohan, senior fellow, Jackson Institute for Global Affairs, and distinguished fellow, Brookings India has said that while scrapping the separate Railway Budget is a positive move, the government has not yet clarified what it plans to do to make the railways more efficient. In an e-mail interview to Udit Misra, Mohan said little improvement has taken place over the years despite there being no dearth of information on what needs to be done. Excerpts:

In your 2001 report you had remarked “From the point of view of investment strategy, the most undesirable feature of the annual Budget exercise is the very short-term focus it imparts to all investment initiatives.” The Union Cabinet has scrapped the 92-year-old norm of a separate Railway Budget. How do you view this development?

This is clearly a very positive development. However, we have not been told how the railways’ annual planning and budgeting will be done in the absence of the separate Railway Budget. We can hope that the populist pressures that the railways minister had to cater to in presenting theRailway Budget would reduce as a result of the scrapping of this annual exercise. At the same time, there will be some lack of transparency in terms of the changes that the railways will bring about every year. In fact, it will become much easier for the railway minister to respond to pressures of special interests without any transparency. On the positive side, one can hope that this will induce the railway minister to do much better longer-term programming and planning, without the short-term focus that the annual railways Budget necessitated. Overall what we really need is a much broader railways reform. Scrapping the annual Budget does not tell us what the government intends to do to make the railways much more efficient and also what the government’s plans are to increase the level of investment that the railways sorely need at the present time. So, in itself, the scrapping of the annual Railway Budget does not give any indication whether this is a positive, negative or neutral move in the context of raising efficiency in the railways’ current functioning or aiding its future expansion.

A central concern for the Indian Railways has been the lack of autonomy. In the recent past, the government has tried to provide greater pricing freedom. Are you satisfied with it?

We have been provided no information on this issue so it is difficult to comment whether the railways’ are indeed getting greater autonomy through scrapping of the Budget. What will be the new budgeting process? Will the railway minister have to submit the whole Budget to the finance ministry officials for approval? Given the limited number of officials that the finance ministry has and the complexity of railway operations, how will the new system actually operate in practice? Will the Railway Board chairman now have report to the expenditure secretary and the finance secretary for approval of the Railway Budget? There has been a great deal of discussion on the setting up of a railways tariff authority. I wish that the decision to scrap the Railway Budget had been accompanied by a simultaneous setting up of such a rail tariff authority. That would have given a good signal indicating an increase in railway autonomy for pricing decisions.

In particular, how did you view the suggestion that there be the so-called surge pricing in train tickets — that was introduced and then retracted by the government?

I am generally in favour of dynamic pricing in the railways which would enable the system to respond to changes in both supply and demand in the railway system. A good railway-pricing system would also help the railways to provide the kind of services that are in greater demand. It would also help them increase services during the times of greater demand relating to school holidays, festivals etc. However, such a change in the pricing system should not be done on a piecemeal basis and without any discussion with stakeholders. Once again, this suggests the need for a tariff-setting authority which would conduct public discussions and then make systemic changes.

Do you think the confusion surrounding the role of the Indian Railways — should it be run on commercial lines and or should it focus on social welfare concerns — has come down? If not then what would it take to do it?

To my mind this is a false dichotomy. The Indian Railways will always have to operate on both commercial lines while also being focused on social welfare concerns. I have been laying stress on the need to change the railway accounting system to a commercial accounting basis for more than 15 years. It is only if the railway accounting system is transformed to a standard commercial accounting format would it be possible to find out which routes are commercially viable and which are being run for social welfare concerns. In principle, those routes that are being run for social welfare concerns should be compensated by the government through transparent subsidies. It is not clear how this will be done when the separate Railway Budget is abolished. It is a matter of great regret that the railway system has been successfully resisting the transformation of its accounting system for such a long period of time, despite having made commitments to do so at different times over the past 15 years. In that sense the scrapping of the annual separate Railway Budget is not necessarily a positive development. It would be indeed be a positive development if this accounting reform takes place simultaneously, and progress is made towards transforming the railways into a corporate enterprise with transparent accounting and procedures. Its operations can then be made accountable to Parliament and the public.

In your 2001 report, you had talked about two kinds of responses to Indian Railways. One was to repair and the other was to reinvent. As you look at it now, where do you stand?

As far as I can see, there certainly has not been any reinvention in the railways over the past 15 years, since that first Railways Reform Report was submitted in 2001. The National Transport Development Policy Committee also submitted the India Transport Report in 2014, with broadly similar recommendations. There have been other reports like the Pitroda Report, the Kakodkar Report and the Debroy Report over these years. Each of these committees provided recommendations that were broadly consistent with the earlier recommendations. The Debroy Report, however, laid greater emphasis on private sector participation in the railways. Laying aside reinvention, I don’t even see much repair in the railways over all these years: There has been some tinkering but no significant process or organisational change. Railway Minister Suresh Prabhu is indeed very well-intentioned and reform minded: He is trying very hard to make a significant change in railways operations, and is also more focused than his predecessors in giving greater emphasis to longer term investment in the railways. But I do believe that the chances of his succeeding are not high as long as the organizational structure of the railways is not changed significantly towards making it a commercial organization that is geared to serving the country’s transportation needs with at least a 20 year horizon.

As documented in the India Transport Report 2014 we need to double annual investment in the railways as a proportion of GDP from 0.5 per cent to one per cent over the next few years. We need to lay stress on completing the dedicated freight corridor in a timely fashion, thereby also increasing passenger transport capacity very significant. We also need to modernise freight rolling stock in a fashion so that containerisation can take place in the country on a widespread basis. The railways has done very little to be customer responsive in the freight area. My 2001 and 2014 reports have provided a great degree of detail on what needs to be done so I can only provide very brief glimpses of the kind of reform that the railways needs urgently and which they have been resisting for 14 years to the detriment of the country's welfare.

We now have an incredible opportunity for initiating significant railways reform while we have a dynamic railway minister like Prabhu, and a powerful prime minister, who can provide the leadership needed to make such changes. Such an opportunity will not come again for a generation.

There have been several international models from whom India can learn. However, is there any one country which provides the best role model for India to emulate?

We do not need international models or to look at any particular country. We have had a succession of reports as I mentioned which provide models that are appropriate for our own country. I should mention that all the work done for those reports was indeed done by serving railways officers and past chairman and other senior retired officers of the railways. So there is no dearth of information on what needs to be done. We do not need to reinvent the wheel on a continuous basis without actually wanting to do any reform in the railways. We can, however study how the Chinese railways system has got transformed over the past 25 years or so. We are now the only significant railways system that is not organised as a corporate enterprise.