Ex-FC(Railways)
Analysing the Rakesh Mohan Experts Group’s key recommendations to corporatise Indian Railways (IR) and separate policy from operations, the writer, relying on earlier studies, rejects these, and sponsors an alternative approach of issuing a national railway policy in the form of a Charter for Indian Railways, to ensure greater commercial orientation without having to part with the assets or direct government control.
Pointing to the fact that the Railways are an “extremely complex organisation”, not permitting outside experts to grasp easily the “many complexities that govern the operation of this massive enterprise” the Rakesh Mohan Railway Expert Group has indicated an approach for consideration. On a careful review of the massive restructuring experience of Railways around the world over the last 15 years, the Group has very rightly concluded that “our solution will have to be our own”.
With commendable modesty, it has suggested that since “there could be other approaches”, the proposed one “be posed for national debate so that the most practical strategy can be adopted”, and to facilitate such a debate, “this report be disseminated to all stakeholders and the public at large”.
Suspicions need to
be cleared
At
the very first seminar to explain the recommendations, a suspicion was raised
that the Report was only rationalising some pre-determined conclusions. Those
who hold such a view cannot be faulted because of some circumstantial evidence.
The group asserts that “Indian Railways is one of the most studied institutions
on the planet” and that” “For almost every conceivable question that can be
asked there already exists a comprehensive and rigorous report that lays out
facts and indicates the answers. “Yet the group does not provide a detailed
discussion of the earlier studies on corporatisation. Why are we deliberately
refusing to look at the mass of knowledge
presented to us by the earlier bodies?
Again,
the The Economic Survey, 2000-2001, points
to the policy direction – that the government would undertake corporatisation
of departmental enterprises to be ultimately disinvested, as a means of
rightsizing the government, since under the existing arrangement the government
appears oversized because of the categorisation of employees of departmental
enterprises as government as government servants. Some time back, there was a report attributed to the Prime
Minister that policy and operations might be separated on the Railways. Montek
Singh Ahluwalia, a key player in the reforms process had indicated at a recent
international conference “that there are possibilities of breaking up the
structure of the Indian Railways” Even in other fora he has been advocating
corporatisation of Indian Railways. These and other recent events do point the
needle of suspicion towards external pressure points, but since a national
debate has been proposed, the benefit of doubt goes in favour of the group.
Is this
ideology-driven?
In
the absence of a full discussion in support of corporatisation of IR, one is
tempted to conclude that the recommendation has been made in keeping with the
current fashion in economic development thinking. But without any intention of
eventual privatisation of IR it ignores the currently fashionable theory of
privatisation as the panacea for all economic ills.
The
philosophy and ideology underlying economic development have moved in long
waves, almost coming full circle. From laissez-faire in the 18th century,
with minimal direct role of the state in economic activities, the philosophy
shifted to greater State intervention late in the 19th and early 20th
centuries, as “a major contributor not only to economic development but also to
social and political stability.”
Over
the years political interference and bureaucratic failure, leading to
inefficiency and ineffectiveness of public sector activities began to be
highlighted. The fourth quarter of the 20th century became “the age
of privatisation”, swearing by the securing of private sector participation in
the form of disinvestment and denationalisation. This has been fuelled by the
example of the privatisation programmes adopted in a number of industrial
countries, notably the United Kingdom. International agencies, and the World
Bank in particular, have been the external agent and the driving force for
popularising privatisation in several countries.
Our
own experience, with public sector corporations, has not been very encouraging.
We have also embarked on a disinvestment drive, although implementation is
facing several roadblocks. Swaminathan SA Aiyar has very tellingly brought out
the ills of the Indian public sector as follows: “It is no accident that the
public sector suffers from debilitating political and bureaucratic
interference. Whatever the case abroad, in India politicians and bureaucrats
clearly feel that the whole point of a public sector is to be able to
interfere. Professors and journalists have lectured for four decades the need
for public sector autonomy to no avail.
One of the main reasons for urging privatisation is that it offers a
better chance of reducing political interference than lectures to ministers.
This is a non-ideological conclusion born of experience”. It would appear that
the main objective of privatisation should be the separation of economic from
political power. Transformation of IR into a corporation, without any intention
of privatisation soon thereafter, will be a grievous retrograde step.
It
also needs to be accepted that privatisation of railways is not an easy
proposition, as there will be very few takers because of the special
characteristics of investment and the slow and low profitability.
The
Expert Group’s view is also that ..”the wholesale privatisation pursued in some
countries is neither feasible nor advisable in India and the UK experience
reflects a hasty and ill-considered experiment driven by political expediency,
and is not a model to be followed”.
In
any case, policy announcements have been made by two successive railway
ministers that the Railways will not be privatised. In her last budget speech
on February 26, 2001. Mamata Banerjee said: “I would like to assure this House that
Railways shall not be privatised.” As reported in the Times of India (August 17, 2001), Nitish Kumar, the
present minister “allayed apprehensions regarding privatisation of the
railways, saying privatisation of British Rail had adversely affected the
functioning of railways in that country”.
How does this
fit with the divestment policy?
The
Industrial Policy Statement of July 24, 1991, excluded Railways from the
purview of `disinvestment’. It was to continue as a departmental undertaking. The
United Front government continued the
policy of disinvestment in non-core sectors. The BJP-led National Democratic
Alliance government classified public sector undertakings (PSUs) on March 16,
1999 into strategic and non-strategic, retaining “Railway transport” in the
strategic group, to be outside the purview of `disinvestment’.
What
needs to be emphasised is that Railway transport is accepted as strategic by
all government irrespective of party
alignements. Any restructuring to be attempted should be within the framework
of this declared national policy.
Railways started in India under the aegis of private companies, and passed through several stages of State and private ownership and brief spells of joint arrangements, before settling down as one of full State ownership and direct State management, as recommended by the Acworth Committee in 1924. Between December 31, 1924 and October 1, 1944, all principal railways were taken over for direct State management either by efflux of time or by exercising the option to purchase them.
Railways were built in India for national integration, economic development and exploitation of
resources, and above all for military purposes. Railways have continued to be a
highly visible national symbol, and the role played by them in times of crises
like the Gujarat quake, Orissa cyclone and military operations like Kargil is
something that cannot be replicated by any corporation. Nor can a corporate
structure contribute to economic development and national integration as the
Railways have done.
Defence services have built
up alternative arrangements in all fields including postal service and
communications network, but are completely dependent on Railways for transport.
All the strategic rail lines are owned and operated by the Railways. There is
no comparison between other
infrastructure facilities and railway facilities as far as transport by rail is
concerned. This fact needs to be kept
in view while coming to any conclusion on the suggestion about corporatisation
of IR.
Railway operations require
constant co-ordination with state governments and other wings of the
Centre. If only for these reasons, it
is necessary that the government exercises direct control over their operations, which is possible only when they
are run as a departmental undertaking.
Over the last decades and more suggestions have been made in various quarters for converting the railways into a corporation. The Government of India Act, 1935 proposed to set up a `Federal Railway Authority’. The Indian Railway Enquiry Committee 1947 (Kunzru Committee), recommended the setting up of a Statutory Corporation, to be known as the “Union Railway Authority”. The Estimates Committee of Parliament which reviewed this question in 1955-56 also advised against the reform for the time being. None of these got implemented.
A
comprehensive study by the Railway Reforms Committee (RCC) set up in 1981, inter alia, “to recommend the best
system suitable for the genius of the country”, led to the conclusion that
corporatisation was neither feasible or desirable.
The
RRC had benefited by an evaluation of this issue for them by the Indian
Institute of Management (IIM), Ahmedabad, whose study concluded that their “overall
evaluation” was “for retaining the Departmental Organisation with a Board for
the Indian Railways”, RRC had also sought the opinion of experts associations,
and supported by the overwhelming opinion in favour of the existing set up, it
concluded in 1985 “that from the point of view of financial viability,
stability of the organisation, the burden that devolves on the organisation to
face situations like internal and external emergencies, the Departmental form
is the most suited for Railways” and recommended that “the present set-up
wherein the Railways are being run as a Department of the Central Government
should continue”.
The
usual arguments in favour of corporatisation are:
·
Railways
can be freed from political and other external interference;
·
Fetters
of the rigid governmental procedures can be removed;
·
Employees
can benefit by sharing in the prosperity of the enterprise; and
·
Greater
freedom in pricing can be secured.
That these advantages are illusory has been convincingly established by RRC, by pointing out that:
·
Corporations
are not free from interference in day-to-day operations.
·
Interference
of the Railways is somewhat high on account of the role it plays, with
far-reaching impact on the everyday life of the people.
·
Conversion
of the Railways into a Corporation not likely to materially reduce the extent
of interference in their day-to-day working.
Regarding autonomy and flexibility, Railways already enjoy much more of these than what is available to public sector undertakings (even the Navaratnas) which are subject to numerous controls of the Public Investment Board, the administrative ministry, and the finance ministry.
While there is
comparatively more transparency in what happens in a departmental undertaking
like the Railways, the indirect control and influence exercised by government
on PSUs are not transparent. RRC had quoted, in this context, a telling
observation by ARC in their Report on Public Sector Undertaking (October 1967),
which holds good even today. ARC had stated that the controls exercised by the
government over these undertakings, “in an indirect manner results in far
greater control of these Undertakings than is necessary or desirable … One
notable aspect of indirect control is that while the Government influence the
decision of the Public Sector Undertakingss they do not share the
responsibility of this decision”.
Much the same
story was brought out by the Economic Administration Reforms Commission (EARC)
in the following words (Report No.4, January 1984).
“Unfortunately
in the name of public accountability numerous checks and controls are
introduced at every stage, which hinder
executive action, concentrate decision making powers in the Ministry and in
fact dilute the accountability of the Management”. “It will not be an exaggeration
to say that the ministries have tended to integrate and absorb the public
enterprises and convert them into mere extensions of themselves”.
Several committees have thus studied this question, and the preponderant view has been that IR should continue as a departmental undertaking with sufficient freedom for railway management to run it as a commercial undertaking.
More recent suggestions and
observations on this subject have come from The Committee to Study Organisational
Structure & Management Ethos of
Indian Railways (Prakash Tandon Committee), the Railway Fare and Freight
Committee (RFFC-Nanjundappa Committee) and the Railway Capital
Restructuring Committee (Poulose
Committee).
This is a vital recommendation of the group. A separate IR executive board in the corporate structure is to run the Railways, while policy will be settled by the ministry. The ills diagnosed are real, but the remedy suggested is debatable. This again is an issue discussed threadbare by the RRC. The ministry of railways combines the functions of the secretariat of the minister of railways, and as the professional apex of the railway hierarchy. It has to assist and advise the minister “in the formulation of policies, coordination with other central ministries, State Governments, Planning Commission, and other relevant authorities, and also in the conduct of the work pertaining to Parliament”. It also supervises and directs the operations of the Railways.
This
system has the advantage that those who formulate the policies are directly
accountable for the results of the implementation of those policies, and,
therefore, for the performance of the railway system. It guards against the
possibility of an `ivory tower’ approach in policy formulation and also makes
available to the minister a secretariat with first hand knowledge of railway
working. It also eliminates an
unnecessary intermediate tier between the board and the minister in the form of
a separate ministry.
The Group has made a symbolic recommendation
about dispensing with the separate railway budget on corporatisation. Since
corporatisation is not supported, this also fails through. As long as IR
continues as a departmental undertaking, the scheme of a separate railway
budget should continue.
Alternative
Scheme
Having concluded that the restructuring recommended by the Group is not acceptable, it is necessary to look for `our own’ alternative scheme to meet the objectives listed by them. These are:
·
To
transform IR into an efficient, customer-focused organisation.
·
To
implement a successful corporate planning approach, in a commercial corporate
framework, where investment programmes and their implementation are closely
linked to the returns to be achieved and the financing structure.
·
Institutional
separation of roles, into policy, regulatory and management functions.
·
Clear
differentiation between social obligations and performance imperatives.
·
To
create a leadership team committed and capable of redefining the status quo;
the leadership team needs to be selected from the best, rewarded for success,
measured against performance targets and be in place long enough to do the job
properly.
All these can be achieved, without disturbing the existing ownership pattern and retaining direct government control, through the national railway policy in the form of a Charter for Indian Railways, recommended by the Railway Capital Restructuring Committee 1994 (Poulose Committee). The Railway Minister’s budget speech described these as path breaking recommendations, but then nothing happened. Such a Charter, laying down the paradigms within which IR should operate is essential to enable the system to function with adequate freedom within prescribed policy prescriptions.
A clear
enunciation of the powers and responsibilities of railway managers, and the
responsibilities of the State, through such a document will bring about the
desired transparency. The biggest advantage of such a policy enunciation is
that it will facilitate carrying out of reforms without actually parting with
the assets. This should be a document duly approved by the Union Cabinet, and
notified in the official gazette after its approval by Parliament. This
together with a much-needed capital restructuring, also recommended by the
Poulose Committee, would enable the Railways to recoup much of the financial
health lost in the last decade.
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