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“The expressions privatization,liberalization and deregulation are freely used in the context of railway restructuring,often synonymously.This committee will use the word liberalization and not the terms privatization and deregulation,as both of these two terms are apt to be misunderstood.”
Industrial Policy in respect of Railways since independence:
Indian Railway Act 1889 or amended Railway act 1989 permits non government railways in India. As per the act private can construct, maintain and operate railways in India. There is no legal bar as for other industries.
British Indian Government nationalised the Railway construction, maintenance and operation in 1924 as no private showed any interest to expand railways though 5% return was ensured. After independence Indian Government announced industrial policy in 1948.It reserved three industries for government. One is Railway Transport apart from Atomic Energy and Defense Production.
In 1956 government announced an industrial policy named as economic constitution of India. Seventeen industries were reserved for central government among which the Railway Transport was one. After unleashing of LPG in 1990 byNarasimmaRao government, the industrial policy was revised. Out of 17 industries reserved for government 9 industries were de reserved to private. Only 8 were reserved for government, of which Railway Transport was one. When BJP came to power in 1998, in 1999, it categorized industries as strategic and non strategic and reserved only three as for government categorizing others as non strategic and de reserving them for private. Out of the three, Railway Transport was one. But it did not alter the policy statement of 1991 reserving 8 for government.
In 2009 UPA II government published a position paper on Indian railways. It gave an explanation to Railway Transport asRailway Operation which means only Railway Operation is reserved for Government and other activities like Design, Finance, Construction And Maintenance can go to Private. Thus it paved way for private in all other areas. Even before that, Railway had been opened for private in these areas.Even in perennial nature of work,in areas covered under factories act,contract employment was introduced. Sanitation,catering, track,rolling stock production and maintenance were open for outsourcing.In 2006 container trains of private had been given concession to run along with that of CONCOR ,the container operator PSU ofIndian railways. Nine port connectivity projects were allowed under PPP like Pipavav, Kuch railway company of Adhanietc .But railway operation in all these are with Indian Railways. Thusthere are at present more than 7.5 lakh contract workers in railways.This is part of 21.12 lakh contract workers in government sector areas including PSEs,reserve bank LIC,banks,railway,defence and other central government employment according to a parliament reply.
Modi government, on 22, august 2014 ,issued a gazette notification amending the 1991 industrial policy, where out of eight industries, RAILWAY TRANSPORT had been reserved for central government, It changed the term railway transport as railway operation giving recognition for Congress Govt’s explanation. It stated that Railway operation will remain with the central government. With the same hand in the same notification it stated that in ten areas of railway working apart from railway construction and maintenance RAILWAY OPERATION will also be open for private.
On 27, august, 2014 it amended the 17-4-2014 UPA circular on FDI entry and included the 10 areas for 100% automatic FDI entry in construction, maintenance including operation. The suburban transport, rapid transport services, dedicated freight lines, dedicated passenger express high ways, passenger and goods terminals, sidings connecting the main lines, coach, engine, wagon production factories and their maintenance, electrification and signaling are those ten areas. It was further extended to 17 areas on 20-11-2014 by a circular naming it sectoral guide lines including mechanized laundry ,technical training institute, branch lines, laboratory facilities, on conventional energy sources, technology solution to unmanned level crossings and safety, rolling stock procurement and even bio toilets.
But Modi, in Varanasi, before the railway workers, on 19-12-2014, announced that privatization in railways is a rumor and the workers should not believe it. On 22-12-2014 the then railway board chairman Arunendra Kumar clarified to PTI that FDI entry in ten areas means almost all areas of railway working.
Bibek Debroy Committee:
This 8 member committee under the Chairmanship of BibekDebroy gave its Interim Report in March 2015 and final report on june,12,2015.which utterly deviates from his assurance. According to this committee, “The experience so far in attracting FDI has been lower than expectations because of a number of reasons......The classic example of this is the attempt to bring FDI in the manufacture of locomotives via the two locomotive factories in Madhepura and Marhaura which were still languishing 7 years after the initiation of the projects.The Committee further states that, “ The Government is rightfully optimistic about bringing foreign direct investment into the Railway sector, .........However, foreign investment will not come under the present scenario. It will come only if the Railway sector is reformed along the lines discussed in this report and the change in incentives and structure as proposed in this Report are put in place. The Railway sector will then become worthy of foreign investment in ancillary production units, terminals, signalling, logistics and the operation of trains”. It is clear from this that the main aim of this report is to open existing Railway network for foreign investment as against the minister’s assurance. The committee therefore has recommended for restructuring of railways.
The Essential Components Of Railway Restructuring:
Essential Components of Restructuring
« A clear division of responsibility between the Government of India and railway organizations. The Ministry will only be responsible for policy and Parliamentary accountability.
« Need for an independent umpire. The private sector will only come in if thereis fair and open access to infrastructure. Hence, shift regulatory responsibility from the government to an independent regulator.
« Separate, independent organizations for Railway infrastructure and those responsible for running trains. Hence, the necessity of unbundling of IR into two independent organizations: one, responsible for the track and infrastructure and another that will operate trains.
« Allow private entry into running both freight and passenger trains in competition with IR. Encourage private participation in various Railway infrastructure services and non-core activities like production and construction.
« IR will focus on core activities to efficiently compete with the private sector. Itwill distance itself from non-core activities, such as running a police force,schools, hospitals and production and construction units.
The Committee opines,India is one of the last countries to restructure Railways. The Committee has briefed the experiences of restructuring of railways in various countries. ‘The key lesson from the UK’, according to the Committee,” is to retain the rail-track and infrastructure as a publicly- owned monopoly, while opening up rolling stock operations for passengers and freight to the private sector.”The Committee further states that “private entry in the running of trains will only be possible if there is clear separation between the organisation responsible for the rail-track/common infrastructure and the trains that will run on them”. Therefore the Committee states that, “IR will need to be unbundled into two organisations—one, responsible for the track and infrastructure and another that will operate trains”. Accordingly Indian Railway Infrastructure Company should be created with track signal and stations. In the final report it mentions only forming of IRIC to be a publicly owned company to be delinked from Government IR. Open access to private sector on the infrastructure will encourage the private sector to run both freight and passenger trains in competition with Indian Railways. Both private and government operators should pay access charge to the infrastructure company. Private participation in various Railway infrastructure services and non-core activities like production and construction will also be allowed.As aresult there will be privatization of even station masters and running staff.
While allowing private participation the committee feels that the private sector will only come if there is fair and open access to infrastructure and level playing field. The railway board has all the three functions with it as policy maker,regulator and also a competitor in operation. So it functions heavily in its favour. When container trains were opened for private 15 private operators got concession and operated. Since railway behaved heavily in its favour the operators have withdrawn and now only two operators are there. Therefore all the three functions should be separated.
The Railway Board will only function as an operator.It will be a CEO under the unified transport ministry.Railway ministry and railway budget will be abolished. It will be a para in the general budget.Policy making should be left to the ministry. Regulatory function should go to Railway regulatory Authority of India. The present Railway Act 1989 restricts the fare and price increase giving a handle to the Government to keep the price of services at a level. This is hindrance to the private operators in order to have the viable fare. The Railway Act should be amended and regulatory authority act should be passed within three years. A Railway Regulatory Authority of India should be created, who will set and regulate tariff. It will adjudicate disputes between the competitorsIt will also set time tables.
Thus, even if the Government Railway operator wants to keep the fare and price at a lower level it will not be possible as the authority will intervene and set the tariff in favour of the private. The regulator will also ensure safety at all levels in Railway system. In case the private or public operators are forced by the Government to keep certain fares and price at a low level, the Government should subsidies both the operators In order to efficiently compete with private sector, IR will have to focus on its core activity of running trains and divesting itself from non-core activities such as running a police force, school, hospital and production and construction units. This should be done within five years.In 6th and 7th years the entry of private operators should be allowed.
Production Units:
The new production units like Mdhepura electric engine factory,Marhora diesel electric engine factory, Rae bareily and Palghat coach factories etc should be handed over to private directly. As for as the existing manufacturing units are concerned an Indian Railway Manufacturing company should be created and delinked from IR.At first it will remain a public owned company. But in course of time it should be privatised.
Construction:
The construction organisation has 23000 employees. The construction work should be handed over to construction autonomous organisations like RVNL, IRCON OR RITES. The employees should be rendered surplus and redeployed.
Hospital:
Railway Hospitals being non core should be leased to private for 30 years.54000 para medical employees and 2600 doctors should be given option to give option for voluntary retirement if they have completed 20 years service and asked option either to remain a private employee.
Railway Schools:
The committee has recommended to hand over entire railway schools to Kendriya Vidhyalaya along with its staff members. The wards of railway employees should be encouraged to admit in private schools giving subsidy. They will say the children educational allowance is the subsidy.
Police:
There are 57000 RPF personnel out of a sanctioned strength of 75000. The committee recommends to hand over the activity to private agencies giving power to appoint them to GM and DRM.As CISF was handed over to home ministry they also be handed over to home ministry and IR should be divested of its responsibility to finance and maintain them. The private operators should have their own security arrangement. Government Railway Police is maintaining law and order in railway limits.IR is paying 50% of its expenses. The state Government should be asked to shoulder full responsibility.
Suburban and Branch Lines:
All the suburban services are making a loss to the tune of Rs 4500 crores.The branch lines are making a loss of Rs.1600 crores.They are sensitive areas. They should be handed over to state governments. The state governments do not have experience in running them. They will hand over them to private.To start with it should be a joint venture with state government with the subsidy burden shared equally by IR and the state government. In future the subsidy should be targeted only to the BPL category and it should be adhar linked direct benefit transfer.
The staff of this section also in course of time will be privatised.As a result of this a large number of railway workers will become surplus. They either can be redeployed or handed over to private. A total of 2.57 lakh employees retire between 2014-15 and 2017-18.Already there is 2.72 lakh vacancies as on March 2013.This opportunity should be utilized.
All group D posts should be abolished and no recruitment should be resorted to. They have started to implement this recommendation by postponing the group D recruitment scheduled to be notified in July 2015 to July 2016.Finally RRC will be wound up. All other recruitments should be regulated, meaning stopped. Compassionate ground appointment should be restricted and done on par with other central government departments. There it is restricted to 5%of recruitment which in practice denies employment as there is no recruitment. Safety related retirement scheme is prevalent in IR for group D safety categories and drivers. There is a demand to extend and expand this scheme to many categories of employees. The committee recommends reviewing this even to gang men and drivers meaning to stop this process of recruitment. Bungalow peons are recruited to officers to assist in bungalows. This should also be stopped.
IR should focus in expenditure reduction in respect of wages and allowances which can be possible only by reducing number as 7 CPC recommendations will enhance wages.
Bullet Bond:
It has opined that pension expenditure cannot be reduced as already committed. However the lump sum outgo can be stopped. At the time of retirement and death a huge lump sum amount is given as settlement dues. The immediate outgo can be stopped by issuing bullet or zero coupon bonds in lieu of lump sum payment. Ordinary bonds are issued with a condition of payment of interest every year. But bullet bonds are issued with a lock in period of 20 to 30 years. The interest is worked out and added to the principal. The bond is issued for the total amount to be realised only after the lock in period. During this period you won’t be paid even the interest. The committee recommends that this amount should be used for investment in railway projects as no private or government investments are forth coming.
Social justice:
Due to privatization of railways and abolition of vacant posts and rendering of large number of posts as surplus in core and non core activities the social justice in respect of reservation of employment in favour of SC,ST,OBCetc will come to an end in a situation in which the educational status of these backward communities is far behind. Already the contract employment deprives the reservation and security of job and decency of employment. In Indian railways there are 2,27,597 sc employees the percentage being 17.06%.There are 1,04,221 st employees the percentage being 7.85%.This is as regards all categories from A to D as on 31-3-2014
Privatisation And Investment In Indian Railways:
As the now defunct planning commission put it, Indian Railways is investment starved. Though the IR is earning profit over all, it, by itself,cannot meet the investment needs of the large country. As BibekDebroy himself puts it, among the top ten countries, railways are under the control of government in eight . The two countries are US and Canada. Even in US the passenger segment is with the government, the loss of which is met by government. In china government invests at least Rs1.8 lakh crore every year in railways.World wide government only invests in railways.
In sixth 5 year plan government investment in IR amounted 75% of total investment. Current year it is only 46%. But it takes away from railway revenues rupees 5 to 6 thousand crores as dividend. It does not meet its about Rs 21000 crores social cost.
IR needs an investment of Rs 5 lakh crore to complete its on going projects of New lines,guage conversion, doubling ,electrification etc.It needs an investment of Rs 81,450 crore to complete eastern and western dedicated freight corridors. For coach and engine factories it needs 1 lakh crore rupees. As per the recommendation of Anil Kakodkar on safety an investment ofRs 1 lakh crore is needed.As per Sam Pitroda committee on modernisation an investment of Rs 5.69 lakh croreis needed for modernization including dedicated lines for freight and passengers .Earlier kumari Mamatha in her vision 2020 in 2009 had forecast an investment need ofRs 14 lakh crore in 10 years.The recommendation of NTDPCfor investment of 35.30 lakh crores is inclusive of all these above investmement proposals.. All these recommendations are only in paper.
Apart from internal resource generation of about 25% ,government budgetary support of 46%, IR is mobilising resources through Indian Railway Finance Corporation. The stage has now reached a situation in which its repayments exceeded the borrowing in 2014-15.Where as it borrowed Rs11,795crores its repayment for past loans was Rs 13180 crores as per BivekDebroy.
It was therefore opened for private investment through various ways. In the 10th five year plan private investment came only to the extent of 0.92% of total investment. In the 11thplan, as against the target of 36%, only 4% came. In the 12th five year plan period an investment of Rs 1 lakh crore was expected. In the first three years ,as against 60,000 crores only Rs 4500 crores could be mobilised. This too only in schemes like wagon investment etc.Mamatha Banerji called the meeting of all captains of industries and said that she would open railways A TO Z and they can come. The Hindu reported that despite her exhortations nobody from the gathering came forward to invest in laying railways or creating coach, engine factories. There are some PPP projects which are port connectivity lines.They ,most of them ,do not make profit. Rae Bareilly coach factory, madhepura electric engine factory or Marhoradiesel electric engine factory which were opened even for FDI could not materialise even today.
BJP government even went to the extent of assuring 80% of projected revenue in its model concession agreement. Despite its opening almost all areas of railway working there is no response from private, either domestic or foreign. They also organised the meeting of industrialists without any result.
According to BivekDebroy ,yes, private has not responded. Even after 7 years of opening, FDI did not come for erecting engine factories either at Madhepura or Marohra.
But they will not come in the present scenario. They will come only after the restructuring we have proposed are implemented.
Same Defeated Route For Mobilisation Of Resources:
The one of the prime tasks of the committee is to find ways and means of mobilisation of resources for executing IR’s ongoing projects including rolling stock manufacturing units.
According to the report there are 11,709 projects in IR as available in the pink book. This is a picture of delays in completion. Their cost to completion is Rs 4,94,911crores. This cost is 98% of the cost to complete. This means only 2% of the estimated cost has been spent so far. The projects are new lines (170),gauge conversion(67),doubling(233),traffic facilities-yard remodelling(598),road safety works-level crossings(204),road safety works-road over bridge and road under bridge(1535),track renewals(2355),bridge works(286),signalling and telecommunication(582),electrification projects(54),workshop including production units(481),metropolitan transport projects(16),rolling stock(1287).The total number of projects as per table is 7868.
The report recognises that the amount raised from private investment is negligible and the borrowing is limited as borrowing exceeded the repayment. As augmentation of capacity to run more trains to earn more money is dependent on resource mobilisation to complete the projects the internal resource generation is limited. The committee therefore suggests discontinuing projects themselves. The committee recommends to update the project information data on a war footing. The present estimated cost to be worked out. If the expenditure so far is less than 10% or 25% or less than 50% of the updated estimate then discontinue all such projects. Already the committee has noted that the cost to complete, based on the non updated data itself ,is 98%,that is ,only 2% has been spent in an average. Virtually the recommendation is to close down all projects. Instead of recommending for government investment it recommends destruction of railways.How then IR can rise its internal resource generation without augmenting its capacity.Already we have seen as to how the committee wants to do awaywith the government support.
7th CPC and Debroy:
7thCPC has wound up all its deliberations to receive representations and submissions. It has announced it would give its final report before the end of their tenure.Their 18 months tenure ends on August 28,2015.
The demand is for increasing the pay by 3.7 times ie 370%.Though the demand is for effecting increase wef 1-1-2014 they will give only wef 1-1-2016.Adding the DA on 1-7-2015 the DA will be 119% as on 1-1-2016.Add to this the basic pay 100%.Then they will be receiving 219% of basic pay as on 1-1-2016.Therefore the demand is 151% more than the basic pay.
The 5th CPC had recommended an increase of 20% of basic pay.After united struggle they had attained 40% of basic pay as fitment benefit.The 6th CPC by itself recommended for 40% of basic pay as fitment benefit.This time it should not be less than 40% and should be between 40% and 151%.Modi was against appointment of 7thCPC on the ground that it would increase the financial burden of state governments. He is now the PM.
Bibek Debroy has stated the following in his report.
“The improvement in IR’S operating ratio, between 2004-05 to 2007-08,by increasing the pay load on wagons, was negated by the 6th Pay Commission award.....With another round of wage increases expected from the 7th pay commission, though hopefully not as destabilizing as the 6THPay Commission, revenue growth can be expected to fall quite a bit behind, In a business as usual scenario “.This means the 7 CPC impact will be less than 6th CPC if no decisive united struggle is launched.
Argentina and British Privatisation Experience:
Argentina railway was privatised when it had 47000 route kilo meters and 95000 employees. After privatisation many railway lines were closed as loss making and now there remains only 8000 km and 15000 employees. Even in 8000 km rail is operated with huge subsidy from the government. Now the Argentina left government has decided to re nationalise railways.
In Britain the infrastructure was initially privatised and train operating companies were separated and privatised. Only one train operating company remained with the government. After great many accidents the infrastructure company was renationalised as put by Debroy himself. The private operators closed down many lines as not profitable. The British government has to shell out huge subsidy to the private operators. Now a referendum in Britain has favoured (68%) re nationalisation of rail operations also. At this juncture the recommendation is following the same defeated route.
The people as well as railway employees should unite to thwart the destabilisation of Railway system in india and demand government investment and stop private entry in train operation.
This Matter was published in FIRE Magazine August 2015
Prepared by Com R Elangovan, DREU
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