Is Piyush Goyal’s Railways Ministry on the Right Track?

BY SUBIR ROY ON 29/11/2017 

From improving operational metrics to transitioning towards electric, Goyal is moving from one policy quagmire to another, trying to shore up as many as he can.

Passengers travel in an overcrowded train at Ghaziabad railway station on the outskirts of New Delhi. Credit: Reuters/Adnan Abidi

Last week, Indian Railways reported four accidents in a span of fewer than 12 hours, in which seven people were killed. This year, until the time of writing, there have been a total of nine railway accidents. This is just one more than the eight accidents that occurred last year (2016).

Three of the four accidents on November 24 occurred due to familiar reasons – two derailments, one of them from a fractured track, and one from a collision with a passing vehicle at an unmanned level crossing. But another accident was a bit of a novelty, almost funny in the way of black humour – an engine got decoupled from the goods train it was hauling, not once but twice. I would please you to know that officials have confirmed that the engine was changed thereafter.

The rise in accidents and casualties in the last few years cannot be traced to any particular deterioration in the way the railways is run, except that if you keep falling behind on replacement of ageing track then the accumulated backlog will at one point start giving up altogether.

That apart, the railways seem to have hit a particular patch of bad luck. All we can do for now is keep looking at what the authorities say and do, and take a view on whether they are on the right track. One piece of positive news is that of railways saving over Rs 5,600 crore in fuel consumption over two years by switching from diesel to electric traction.

The ministry has also affirmed that it plans to switch over completely to electric traction in five years, thus saving Rs 11,500 a year. That is the right approach, particularly when the country is making rapid progress in installing renewable energy capacity. Using such energy will not only reduce costs but also help fight environmental pollution.

Also read: The More Piyush Goyal Shakes up the Railway Ministry, the More Things Stay the Same

But the railways will simultaneously run into a major problem. What to do with the high-tech diesel locomotives it is committed to procuring from a new plant being put up in Bihar by the leading global manufacturing firm General Electric (GE)? This project, valued at $2.6 billion, including the Bihar plant costing Rs 2,052 crore, was ten years in the making and represents the largest investment by GE in its 100-year existence in India.

On learning about the railways’ rapid electrification plan, GE threw a fit and spoke of dire consequences like adverse impact on the ‘Make in India’ programme and foreign investment. It would have helped if while announcing the five-year electric traction agenda, the railway minister Piyush Goyal had also signalled how the GE project issue could be sorted out.

It has also been reported that the minister has ordered a hard look at 171 projects worth Rs 1.5 lakh crore which have made no progress in ten years, have no local or state government support and will mostly not be financially viable. In the case of many of these, even land has not been allotted.

Cancelling such projects is all for the good but the problem is these have all been announced as part of the railway budgets presented by Lalu Prasad and Mamata Banerjee and passed by the Lok Sabha. The house can, of course, bury them but all the projects have local political ballast and striking them off the list as the country has already got into a pre-election mode will take some doing.

To lend credence to any decision on the ground of viability, it is necessary to independently assess their projected rate of return through an audit by a third party. Once this is done, the government can be told by the railways that if it wants to continue with a particular project on political or welfare grounds (for example, it is good for the livelihood of people in the particular region) then this is the amount of subsidy or budgetary support it has to get on an ongoing basis. But if we know the current mindset of the finance ministry, such money will be hard to come by.

If past practice is anything to go by, the railways will keep talking about such inherently loss-making projects but at the end of the day keep having to support them for local political reasons and be satisfied with the overall budgetary support annually available.

On the issue of finances, the railway minister seems unusually sanguine.

There are many opportunities to monetise assets and “frankly I will not be constrained for funds at all,” he has assertedand assured that there is “enough funding for all safety-related projects.” As for the investment required for growth-related projects, “we will be able to raise a large part of that fund internally within the railways.”

This will require a sharp and dramatic improvement in the operating ratio of the railways to yield the surplus needed. Currently, the ratio, indicating the portion of revenue consumed by operating expenses, is highly adverse. Absolutely nobody familiar with the railways has projected a sharp improvement around the corner in the operating ratio which the minister’s assertion implies. In the past, lack of resources led to a backlog in something as essential from the safety point of view as replacement of ageing track.

Also read: Amid Growing Safety Concerns, a Bumpy Ride Ahead for New Railways Minister

What the minister may have in mind is pursuing a range of resource enhancing options more intensively than in the past – market borrowing, public-private partnership, cost-cutting (like going electric), realising the full value of assets like railway stations and land alongside tracks and new marketing initiatives (like carrying Amul’s products) to support fresh investments.

Irrespective of what the minister might say, the railways will have to live with a significant internal deficit as it is a public good and partly a natural monopoly from which access cannot be denied to substantial numbers of those in a poor country who cannot pay the full cost. What is more, the social good that the railways do is being enhanced by the day as non-polluting public transport is encouraged to mitigate climate change.

Privatisation, either entirely on extensively (straightforwardly or through PPP) is not an answer. There is a constant debate in the UK over whether British Rail should not be re-nationalised as extensive privatisation of parts of it has not worked. That privatisation is not an answer should be acknowledged up front and talk about money not being a problem should be avoided.

The minister has said that his nearly three-month stint at Rail Bhavan has been a learning period. But even then he has reportedly taken over 600 policy decisions.

One can only say, “Bravo!”

Subir Roy is a senior journalist and the author of Made in India: A study of emerging competitiveness (Tata Mcgraw Hill, 2005) and the forthcoming Ujjivan: The microfinance frontrunner (OUP).