REFORM OR PERISH
INTRODUCTION:
Much has been already said and written about
restructuring of Indian railways. There have been a plethora of high-powered
committees formed with its well researched reports and recommendations, already
on this issue. The latest being the Rakesh Mohan Committee. However, the pace
of reforms in the IR (read:Indian Railways) has been far from satisfactory and
its financial fortunes are entering a spiral trap. At present, IR has two
possibilities: significant change through reform or a financial and operational
collapse.
Railway reforms have been carried out the world
over. We may argue that India and IR are “different” and the experiences of
other countries are not relevant to our conditions, the fact remains that these
experiences serve as a guiding light and throws up various options. The
question is how to define options, how to fit them to Indian conditions and
objectives, how to evaluate the options and how to implement the decisions.
Implementation is the key to successful change because IR is very vital to the
economy. Disruption of services would be disastrous, and many of the changes
needed must be accompanied by suitable “safety net” protections for affected
groups. The reason why all those previous recommendations for restructuring
have not been implemented or even initiated is probably because they had not
taken into account that in a governmental set-up, economic factors alone cannot
be considered. The socio-political factors also have to be considered. In fact,
the economic factors are the enabling factors, while the socio-political are
the constraining factors. Even the World Bank in its report in 1995 has
acknowledged that Rail Reforms are “difficult reforms”, and it would not be
possible without strong political will.
However, we cannot afford to wait till the
political will gets built-up. Reforms are urgently needed to infuse fresh blood
in this financially anemic organization. What is needed is a road
map to reforms which is neither incremental in nature so as to have
insignificant impact, nor too revolutionary so as to destabilize the economy as
well as the organization. If the reforms are outlined in such a way that there
is no need to Corporatise or Privatize IR, no staff retrenchment, no compromise
on political considerations, then we can hope that it would be implemented as
the existing stakeholders of the system would not stand to lose. A broad
framework of such a reform is outlined below.
ROAD MAP TO REFORMS:
1. Rationalization of passenger tariffs and services: According to a study
conducted by LRDSS (Long range decision support system), a directorate under
Ministry of Railways, that total cost of running a slow passenger train is the
highest among all types of passenger services. However, these trains have the
lowest tariffs and some have poor occupation ratios. IR runs about 3200 slow
passenger trains daily and these conceivably contribute the maximum loss in
passenger business. Even at full occupancy, these trains make heavy losses.
They also consume a substantial proportion of scarce line capacity on high
density route. Rationalization of such services and its tariffs will have to
take place with immediate effect. In the light of a well developed Road
network, many of these services can be discontinued. Where continuing the
service is necessary, the tariff may be suitably increased so as to minimize
the losses.
Comparing IR with Chinese Railways which is also
a part of ministry and serves a large country and population reveals some
interesting facts. Passenger Services ran at a loss in China as well, given
concern about the ability of masses to pay the real cost of passenger services.
Initially, in order to conserve capacity for freight traffic and minimize
passenger services by rationing travel. Later it was realized that a better
approach would be to raise passenger fares and use the surplus generated to
increase capacity and quality of service. Between 1994 and 1998, China Railways
raised passenger fare by 75%. Its ratio of passenger fare to freight tariff
changed from 0.86 in 1994 to 1.15 in 1998- as compared with 0.30 for IR.
2. Licensing of Freight traffic:
IR should license public/private/mixed operators
to manage the different streams of freight traffic – such as Oil, Cement, Iron
Ore, Coal, fertilizer, food grains and petroleum products. By focusing on
specific Commodities and specific sets of customers, and by offering
Customer–oriented pricing and service packages, these freight operators could
bring about a substantial shift of freight traffic from Road to Rail as well as
capture a much bigger share of the growth in freight traffic. This optimism
emanates from the experiences of IR with CONCOR. Only by focusing on the
special needs of the customer by CONCOR the Container traffic in Railways
increased five-fold, since the inception of CONCOR.
Also, the competition among the operators should
improve quality of service and productivity and bring down costs. Incidentally,
the average freight tariff of IR at about $0.62 /ton-km (In 1995 Purchasing
power parity) is among the highest in the world. It is almost 2.5 times the
average tariff in China, USA and other similar Railway systems.
The modalities of the licensing of Freight
operators can be worked out depending on the factors like extent of competitive
environment desired vis-à-vis Government Control and Regulations. On one hand,
there can be a policy of licensing all operators that meet the minimum criteria
to operate on an all-India basis, for all streams of traffic. On the other
hand, we could have a number of wholly-owned government Companies for different
streams of traffic, to be progressively divested.
Before the policy for Licensing of freight
Services is formulated, certain Operating procedures will have to be
established. These Operating Procedures will have to address a host of issues,
the main one being Access Charge. The Access charge would depend
on the pricing for the use of Infrastructure. The Pricing for use of
Infrastructure should be non-discriminatory, comprehensible, transparent and
above all strongly correlated to the costs incurred for the provision of
infrastructure and related services. Secondly, the pricing structure should
generate enough revenues for the infrastructure entity and enable it to
maintain the infrastructure according to specified standards, as well as earn
an acceptable return on this investment and effort after meeting all other
obligations. Thirdly, the pricing structure should promote enhancement of
operating efficiency and productivity. For example, if part of the access
charges is fixed on the basis of Slots used irrespective of the train load, it
would encourage longer trains. Similarly basing access charges on GTKM or
Wagon-Km would encourage the use of more efficient wagons with less tare weight
and more payloads.
Another important issue that has to be addressed
in Operating Procedures is allocation of responsibility for accidents. Again
the allocation of responsibility should be so modeled so as to encourage
improvement in infrastructure as well as safe running of trains.
3. Infrastructure Concessioning:
There are two chief constraints of traffic
growth: Track Infrastructure and Rolling stock for freights (i.e. Wagons and
Locomotives).
The upkeep and growth of the track infrastructure
has to be in consonance with the increased traffic demands. Given the paucity
of funds, this would be a difficult task for IR alone. This problem can be
solved by Infrastructure Concessioning on Corridor-by-Corridor basis. By
Concessioning the IR will continue to own the infrastructure while awarding
long-term rights to the private sector to manage the infrastructure. Under
Concessioning, the Concessionaires will earn revenue from the access fees paid
by operators; in return they will have Contractual responsibility for moving
the operators’ train according to agreed terms and conditions.
4. Leasing of Rolling stock for freight:
The Licensed operator should have the option of owning
the rolling stock, leasing from open market or leasing from the IR. This will
also promote productivity in the wagon and Loco manufacturing as well as
maintenance units of IR. This will create a market for wagon and Loco leasing
private companies. The leasing policy should be such as to promote maximum competition
between the different players. As a consequence, the cost of acquiring and maintaining
wagons and Loco should reduce and the design and quality of wagons should
improve.
5. Overall Institutional Framework:
To implement this policy an overall institutional
framework, in terms of Autonomous Regulatory bodies to provide Economic & Technical
Regulatory mechanisms will have to be established. The Railway Act will also
have to be suitably amended. A suitable VRS scheme for the surplus staff will
have to be formulated as outright retrenchment will not be possible.
CONCLUSION:
The
reforms outlined can be treated as the first phase of Railway Reform. The
future course, extent and shape of reforms would be determined by the
socio-political and economic conditions prevailing at that time. The reforms outlined above will have to be
accepted, implemented and internalized into the IR system. IR can hope to
thrive only if it is able to survive.
Authored by:
Prashant Nikam
IRAS-96 exam batch
SrAFA WCR