Railway Offices Complex, Tilak Bridge, New Delhi-110002
HARISH CHANDRA
Dear Sh. Rana,
Ref: Your D.O. No.2002/E&R/50/CRB/5 dated
May 3, 2002
I
do have a dream, vision and conviction that very soon Indian Railways will
become a financially vibrant modern organization, sharing the aspirations of
Indian republic. I am happy to note
that you envisage a proactive role for Finance Officer (who have only been
reacting to initiatives by their colleagues), which is in tune with the
organizational structure and functioning of modern organizations. Progress of
any organization or even a country depends upon the speed of Decision
Making. Open societies with higher
level of mutual trust & minimum level of procedural barriers have
progressed faster while the societies with historical burden of retrograde
value system and lack of trust due to cultural and social divisions have lagged
behind. Railways have to emerge
as a cohesive organization with modern values by over coming departmental as
well as hierarchal biases. We could
not make any headway inspite of recognizing this as an important organizational problem area.
A well
defined Business & Investment Policy is necessary for achieving sustained
growth & viability for any organization.
Being a monopoly (rather having a monopolistic attitude), Railways never
felt the need of a focused business policy as the same is used, basically for
meeting the competition. Though
Railways have been setting long-term and short-term targets of the business
through corporate Plan, five-year Plans and annual Plans, the approach in setting the targets and
forecasting requirement of resources has been largely incremental. Apart from a crude macro projection of business, the constraints of
the carrying capacity of the system (yardsticks need to be challenged), has
been largely the deciding factor for setting the Plan targets. Business policy or the strategic management,
aims at developing competencies to face the challenge of competition &
appropriate the largest possible market share of business. The entire planning process has to be
attuned in this direction.
I had an
opportunity to look into certain aspects of the present financial crisis of Indian Railways in somewhat greater
detail by way of a dissertation entitled
“Investment Decision Making on
Indian Railways (Policy & procedures)”
during my study at IIPA. I have
come to the conclusion that poor quality of investment decision making, project implementation & lower level of asset utilization are critical factors responsible for the
present crisis. Our return on
investment at macro level is lower than the cost of capital even from budgetary
support. How long could it be
sustained? Further in any capital intensive industry, the volume
of business have to grow at a rate faster than the investment in order to
distribute the large fixed cost to larger volumes. The implication of going slow are serious. Railways have been put in a vicious circle
as more investments are resulting in further lower average return. Lower utilization of assets throws an
inflated demand of investments resulting in further unproductive asset acquisition.
Investment Decision
Making on Indian Railways need a thorough review. I have discussed the limitations of present policies &
procedures & the corrective measures in detail in my dissertation. One important aspect, I would like to mention here is
regarding not following the provision
regarding considering various options for achieving the same goal. As these
options generally transcend the
departmental boundaries, it is recommended that the departmental
processing of investment proposals at the Zonal Railway and Railway
Board level should be done away with.
The investments should be finally decided by a multi-discipline Planning
cell where the Long Range Decision Support System (LRDSS) should be extensively used. At Railway Board’s level there should be a
convergence of the three components of plan. The integrated plan should be jointly put to the
Minister by the full Board.
The
allocation of resources to various Railways and the departments within
Railways, should be based on a well defined policy. The productivity of investments should be an important criteria for determination of the share of Plan
allocations.
The
productivity of investments should also be measured at a macro level, for a
Railway system as a whole, along with the present system of seeing the
financial viability of each project at micro-level.
The
investment decisions should be taken as a system and not piecemeal. All works to remove any gaps, bottlenecks
or ancillary works, to make the project fully functional should be included to
avoid delays. Adequate tenure &
freedom to the project authority should be given & ensure accountability.
A
computer-based system should be evolved to link the revenue budget with the
investment plan. The additional
earnings/savings projected in the project estimates should be reflected in the
revenue budget of the Railway during the year of commissioning of the project.
Rolling
stock is a major component of the Annual Plan.
The norms for calculating the requirement of various kinds of stock have
still to be standardized. The LRDSS
group has developed certain models in this regard which can be effectively used
for optimizing induction of Rolling Stock.
Simultaneously new standards for assets utilisation breaking from
incremental approach should be developed through simulation models. Effective steps have to be taken to
minimize the online failures of rolling stock, the speed restrictions and
failure of other equipments, which can considerably improve the utilization
levels of rolling stock.
There is
one area in rolling stock i.e. Itemized
Rolling Stock (under which each Railway
hardly gets Rs. 15 to 20 crores per annum) which can be fully
decentralized. Similar is the case with M&P where allocations are still lower. This will not only enable the Railways in
fast acquisition, avoid the mismatch between the requirement and the sanction
but also considerably reduce the size of the Pink Book.
The
availability of assets depends upon the speed and quality of the maintenance
activities, this in turn depends on the quality of infrastructure and the level
of manpower skill available. Over the
years the expenditure on maintenance activities particularly on rolling stock
has been going down which should be a cause of concern. We have made sizeable investment in
upgradation of Locos & Coaches. The
desired results can be achieved only if we gear up for faster absorption of
technology & bring production levels to economy of scale. This is an area which can give Indian
Railways Global competitive advantage.
Due
to reduced level of maintenance
requirement for new brand of rolling stock there is some spare capacity in the
workshops which can be gainfully utilized for value added products and
services. Mr. S.A. Singh, Chief
Administrative Officer of COFMOW has developed a model for effective utilization
of this capacity which appears quite promising and should be
immediately tried in selected workshops.
Apart
from the above I would like to make a
few general suggestions:
i)
The present HR Policies produce good field officers and
fire fighters but poor managers. The value system also give higher
recognition to a field oriented person than a planner or a creative
manager. The result is that people
reaching at general management policy making positions like DRM, GM and Railway Board level apply
the tools suitable for operational
problems even to the issues of planning,
investment decisions and human resource development. With the result, the top management is not able to contribute to
the desired level to the major issues
before the organisation. Suitable
structural changes in this
area should not be further
delayed.
ii)
It is still to be established whether the Vigilance
Organization has been able to bring down the level of corruption, but it has
certainly slowed the speed of decision making.
I feel, this is the time for the vigilance department to change their
approach from restricting the corruption to promote honesty and faster decision making.
iii) All codes and manuals by and large have
been written emphasing on multi layer
check rather than organizational
functional requirements. As this
not only delays but also results in shifting of the responsibility. Codes and manuals have to be revised
defining the role and functions at various levels linking to productivity and organizational objectives.
iv) Management
information system should be reworked
to make it a tool for decision making.
Multiplicity of information has to be avoided. All information should
be in financial terms for universal performance appraisal.
v)
Each major Railway office should be encouraged to achieve
professional excellence in one area of their functioning. Office of the FA&CAO/COFMOW has
developed a reasonable expertise in foreign exchange payments including
purchase of foreign currency from the market and has been able to achieve savings
of about Rs.5.21 crores during the last five years. This office can be developed into a foreign
exchange management center (including Forex Risk Management) which can
train the staff of other accounts
offices to achieve overall economies.
vi) The maximum change of role in the coming
years will be for the Finance Officer, they have to get professionally geared
to bring the new techniques of financial management, concentrate on new areas
like resources mobilization, revenue management and at least be adequately aware of developments in
Financial & Accounting fields world
over.
A copy of my dissertation ‘Investment
Decision Making’ Indian Railways (Policy and Procedures) is probably available
in the library of the Railway Board and can be referred for details if
required.
Yours
sincerely,
( HARISH CHANDRA)
Sh. I.I.
M.S. Rana,
Chairman,
Railway
Board,
Ministry
of Railways,
New
Delhi-110 001.