Let Railways Make Economic Sense: Debroy Committee
The recommendations are not driven by a doctrinaire free market philosophy. It’s a pragmatic approach towards making the department viable.
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| Bibek Debroy |
Advocates of liberal economics who must have turned ecstatic
over the talk of trains by private companies in this morning’s newspapers must
note that even the existing private domains are functioning below par because
of confusion over returns on investment and the uncertainty of political
intervention in their work, the committee has observed.
Welfare
In a measure that is bound to irk existing employees of the
Railways as well as make it unattractive for candidates who aspire for a job in
the sector for its perks and comforts, the Debroy Committee has recommended
that all “off-line” activities such as hospitals, clubs, catering, real estate
(for example, providing employees with living quarters), etc be delinked from
the department. But this would make eminent economic sense, as no state-run
public transportation system even of the most welfare-driven socialist states
in well managed economies carry this “un-remunerative” burden.
For that matter, since the government does not hire and fire
on the basis of need and performance, manufacturing of locomotives, coaches,
wagons and their parts wouldn’t be a cost-effective operation. And so they must
not be part of the Railway portfolio either, the committee argues.
That does not, however, mean that the committee wants even
the welfare measures to disappear. Schools for wards of Railway employees may
be moved to Kendriya Vidyalayas, Debroy & Co have suggested.
Similarly, medical care is not being privatised either. The
committee “recommends that for functions such as periodic medical examination,
pre-employment examination, medical boards, safe water and food supply at
stations etc., the GMs/DRMs as well as the employees could be given the choice
to opt for services either through IRMS or through private empanelled
practitioners. For preventive and curative health care of employees, the choice
may be extended to the CGHS framework and subsidized health care in private
hospitals should not be restricted only to referral services.”
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| The BR Singh Hospital in Kolkata, a medical facility of the Indian Railways |
Money for salaries and pensions
The Railways has been finding it extremely difficult to pay
the ever-burgeoning size of pensioners. If the Sixth Pay Commission made it
“unmanageable”, the Seventh in 2016 would threaten to cripple the railway
economy. Therefore, for the department’s “long term-economic viability,
customer satisfaction and for being adaptive and flexible organization, the
Indian Railways should focus on business/customer units like freight business,
passenger business, suburban business, parcel business etc.” This happens to be
a recommendation of the previous committee on railway reforms, too.
This portion is ambiguously worded. It does not explain where
the money for ever-increasing salaries and pension will come from. Is it being
suggested that every “business unit”, as the report calls the different wings
of the railway department, will be responsible for payment to its respective
small units of employees and pensioners? No, assured Bibek Debroy to me. If the
government has these small cost centres, if not profit centres, he said, it
will get a clearer picture of the earnings and expenditure of each. “At least
you know it is becoming clean,” Debroy said.
Now, if the government accepts this recommendation — more on
this in the section on decentralisation — the hurdle it has to cross is trade
unionism. The unions are expected to misread the new policy as the State asking
these units to perform like a market operator, which would mean winding up of
some units altogether if they are found unwanted by customers in large enough
numbers!
They must note Bebroy’s quote: “We are just flagging (the
issue of retirement). It is going to worsen. The bunching of retirement is
probably going to be over by 2018. Once you can tide over this period, you will
be in better shape. This is not a solution (to paucity of funds for pension);
this is just flagging the issue.”
Decentralisation
The money that DRMs have the power to use in projects is
available in absolute monetary terms as of now. The committee proposes that
this fund be linked to inflation so that the officer on ground is not stuck
with paucity when prices of goods involved rise. If the recommendation is
approved, the divisions will run as “independent business units”. The panel has
further proposed that “the head of the zone (GM) must be fully empowered to
take all necessary decisions without reference to Railway Board within the
framework of policies”.
But the problem did not lie in money alone. Perpetual
centralisation of the department sapped team spirit out of railwaymen and they
turned inward, competing with colleagues to be in good books of the bosses and
thus turned insensitive to customers (passengers), the committee notes.
To address the issue of intra-departmental squabbles for
promotions, the committee has asked for an institutional mechanism to ensure
that selected officers once positioned against general management posts
continue to perform that role for their residual careers.
Once the zones are made autonomous, the Railway Board will
have little role to play in their day-to-day functioning and can become like a
corporate board for IR — policy being determined by the Ministry of Railways
and competition being ensured by the Railway Regulatory Authority of India
(RRAI).
Programme implementation
Among the agencies that execute Railways’ projects,
organisations of different zones have been found too “large and unwieldy” to be
effective and, hence, recommended to be brought under PSUs such as Rail Vikas
Nigam Limited (RVNL) and Indian
Railway Construction (IRCON) Company
Limited.
To address the issue of unwieldiness, the committee also
seeks to merge five technical services into one and three non-technical
services into another — if bringing them all in one group is found to be not
feasible. The five of the first category are Indian Railways Service of
Engineers (IRSE), of Signal Engineers (IRSSE), of Electrical Engineers (IRSEE),
of Mechanical Engineers (IRSME) and of Stores Service (IRSS). The three of the
second are logistical: Indian Railway Accounts Service (IRAS), Personnel
Service (IRPS) and Traffic Service (IRTS).
Financing projects
Improvement in internal resource generation and utilization
of available resources, and exploration of varied methods of financing are the
committee’s solutions for the Railways to emerge from its “precarious” economic
condition. It recommends of review of the large shelf of projects that have
gone into time and cost overruns “from a zero base budget perspective”. Only
the small languishing projects can be fully funded — under the condition that
they be completed in two years. Others are no longer commercially viable.
Maintenance
Services such as cleaning of trains and stations, IT
initiatives etc are performed in parallel by multiple agencies “resulting in
sub-optimal performance”. The committee therefore finds a need to integrate and
synergise such functions.
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| Maintenance staff working on the tracks at an Indian Railways station |
Since government funding for the Railways has successively
reduced as different ministers have all looked for investments from private
parties for peripheral-to-core services, bad accounting practices acts as a
deterrent for investment — as it confuses the planner about costs and the
potential investor about a definite return on investment. The committee has,
hence, recommended that Railways switch to commercial accounting. “This
Committee recommends establishment of a responsive and transparent accounting
and costing system as the first stepping-stone to a commercially viable Railway
system,” the report says.
“Until you know what the rate of return is, whether it is
public or private money, why should someone come and put his money (into a
project)?” Debroy reasons. “I am borrowing, let us say, at 8 per cent — either through
IRFC or from the Japanese — I have to repay that. If my average return on a
project is less than 2 per cent, how am I going to pay back?”
“Let us prioritise the projects,” Debroy said, “and only
choose the ones that are viable or the ones where I have explicit budgetary
support — either from the national or a state government concerned.”
On budgets, the panel observes that the government spends so
much on revenue expenditure that it has little to pour into capital
expenditure. And then, the Railways pays high dividends. As a solution, the
committee has proposed a “review the dividend policy for IR and provide it with
a GBS (Gold Bullion Securities) net of the dividend payment. This would enable
the IR to apportion more money to its DRF (Depreciation Reserve Fund) for asset
renewal aligned to its arising.”
“There is plenty of scope for cost saving if you
decentralise. Decentralise not only to the level of the DRMs but even further
down! You allow the DRM to choose — since he has an independent cost centre —
whether, say, he picks security personnel for trains from the RPF or
elsewhere.”
Winding up the conversation, Debroy disapproved of the way The Times of
India has interpreted the report. The recommendations of the
committee have been lying in some computer of the Railway Bhavan for some time.
A staffer must have leaked it, resulting in a “petty” story by the said
newspaper, the eminent economist believes.
The discontinuation of Railway Budget ultimately and its
replacement with a regulator, which the newspapers have talked about, actually
figures in this form:
Observing that the private sector entered Railways in 1992,
the committee also noted that the schemes for private players “failed to serve
the goal due to high costs and lower returns, policy uncertainty, lack of a
regulator to create a level playing field, the lack of incentives for
investors, and procedural/operational issues have significantly restricted
private sector participation.”
To prevent the same organization from dealing with the the
prime functions of policy making, regulatory function and operations, the committee
strongly recommends establishment of an independent regulator: the Railway
Regulatory Authority of India (RRAI), with a separate budget and to be
independent of the Ministry of Railways.
“The RRAI will have the powers and objectives of economic
regulation, including, wherever necessary, tariff regulation; safety
regulation; fair access regulation, including access to railway infrastructure
for private operators; service standard regulation; licensing and enhancing
competition; and setting technical standards. It will possess quasi-judicial
powers, with appointment and removal of Members distanced from the Ministry of
Railways. The issues like consumer complaints, including class action complaints
will not be addressed by RRAI,” the report reads.
This is the most significant step recommended for
depoliticisation of the Railways. After all, a separate Budget for the Railways
is a British imperial legacy that has outlived its utility — now only serving
the purpose of successive railway ministers (not the current one) brazenly
overloading the tracks that pass through (or lead to) their respective home
states. The propensity to artificially keep the passenger fares lower has not
served the department either, even as the freight service continued to dwindle.
Other panellists in the committee were Kerala State Planning
Board’s KM Chandrasekhar, former CMD of Procter & Gamble Gurcharan Das,
former MD of the National Stock Exchange Ravi Narain, Prof Partha Mukhopadhyay
of Centre for Policy Research, former financial commissioner of the Railways
Rajendra Kashyap, Department of Economic Affairs’ Ajay Tyagi and Department of
Expenditure’s Ajay Narayan Jha.
On a sombre note, the committee has noted that the recommendations of
the previous committees have hardly been implemented.
Report of the Committee for Mobilization of Resources for Major Railway Projects and Restructuring of Railway Ministry and Railway Board: part 1, part 2 and the concluding part.
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