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Given the pile-up of problems, the ‘Vision' exercise for the Railways cannot be faulted for being overambitious. A massive surge in investments is needed to clear project backlog and transform the Railways into a world-class network.
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by S.K.N.Nair
(The author was member of the Expert Group on Railways (1999 - 2001). He is currently Senior Consultant to the National Council of Applied Economic Research, New Delhi. The views are personal.)
by S.K.N.Nair
(The author was member of the Expert Group on Railways (1999 - 2001). He is currently Senior Consultant to the National Council of Applied Economic Research, New Delhi. The views are personal.)
The Railways istrapped in an outdated structural framework and a politically-driven agenda
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Major infrastructure reforms target economic gains but are also political exercises. The decisions to reform, their scope and timing are influenced by concerns of political gains and costs, especially where the sectors are politically sensitive. In general, sectors carrying large workforces fall in this category.
Apart from the workforce factor, the power sector and railways are politically sensitive to the point of being ‘politicised' owing in part to one common characteristic: they both touch the lives of millions on a day-to-day basis. In the case of power, there is also the political impact of price subsidies and of widespread power shortages.
Apart from the workforce factor, the power sector and railways are politically sensitive to the point of being ‘politicised' owing in part to one common characteristic: they both touch the lives of millions on a day-to-day basis. In the case of power, there is also the political impact of price subsidies and of widespread power shortages.
Political will
The Railways' case is special. Referring to the tall targets laid out in its recently released ‘Vision 2020', the article ‘Reinventing the Railways' ( Business Line, January 28, 2010) stressed the need for extraordinary political will and a broad consensus across the political spectrum to realise the Vision objectives.
In the calculus of political gains and costs, such a will and consensus can come about only where gains outweigh costs. In this assessment, economic factors and long-term concerns of overriding national interest carry much weight at the top-most decision-making tier, but lower down the hierarchy, local and short-term concerns and group interests take over.
In the power sector for instance, a complete statutory and institutional framework for liberalisation is in place but actual reform of the distribution segment — the cutting interface with the consumer that engages major share of the workforce — is so far limited to Orissa, Delhi and the small town of Bhiwandi (in Maharashtra).
Implementation of distribution reforms rests with States and the political costs will be too high, in the short term; lacking early means to improve supply standards, States opt to go slow on price adjustments, putting reforms on hold. The short time-span is generally determined by the election cycle and the overriding interest of the decision-makers to retain power.
The Railways' political cost-gain calculus is skewed by another factor that makes the time-span shorter still: the annual Railway Budget. Railway freight and fare revisions do not need Parliament's approval. As for government spending, votes for all other Central ministries are taken through the general Budget.
Factors that led to the separation of the Railway Budget (in the late 1920s) have long ceased to apply. The tradition survived Independence and over the early Five-year Plans the separation did help in channelling large outlays for railway expansion. It also served economic redistributive objectives, chiefly by subsidising some passenger services. This latter factor fuelled the Budget's creeping politicisation and very recently (in the phase of coalition politics) led to it becoming a political institution in its own right.
Three main elements
In its present ‘avatar', the politics of Railway Budget-making takes in three main elements: Leaving fares and freights untouched and, if possible, announcing some reductions. And a long list of new train services and sanction of new railway projects make up the other two elements.
The first of these is seen as reflecting good management of the undertaking and the success of its political leadership — although, as the recent ‘White Paper' of the Railways notes, rates were effectively raised in some instances (with little publicity) through post-Budget administrative freight revisions. The second and third elements serve to satisfy regional aspirations, thus providing political clout plus high ‘visibility'.
This is not to belittle the public concerns involved. On the issue of new train services in particular, politicians at the field level have a greater feel of the extent to which the economy is getting closely knit, throwing up travel needs cutting across States and regions. Passenger traffic has been booming as a result. There is also no doubting the gains that investments in greenfield railway projects would bring to backward areas. The problem is with the implementing mechanism, the organisation, which is trapped in an outdated structural framework and a politically-driven agenda susceptible to annual changes in priorities. The organisation is hamstrung further by a top management structure which is overly preoccupied with administrative and operational tasks, is functionally and departmentally aligned and has little exposure to external expertise.
The result is that problems identified in all official reviews, let alone expert studies, have festered: highly skewed freight rates, low, stagnant freight train speeds, dated technology, low productivity and a shelf of pending projects — several of them of urgency for improved operations — that will take decades to complete at the current investment levels.
Long overdue exercise
A ‘Vision' exercise for the Railways is thus overdue. Given the pile-up of problems, the document released cannot be faulted for being overambitious.
A massive surge in investments (from all three streams — internal resources, the general Budget and private partnerships in select areas) is needed to clear project backlog and to transform the Railways into a modern world-class system.
The vision to accomplish this in just ten years is about on par with what is taking place in telecom, on the strength of technology and a much larger private share. By comparison, the headway being made in the generating segment of the power sector (ultra mega power plants, etc), is modest.
Notably, the gains in both these sectors were made possible by carefully-designed structural changes and autonomous regulation that would reduce risks and bring in private investment in needed volumes. These measures imposed high political costs.
Railways' ‘Vision 2020' sidesteps issues of structural and regulatory change (and the attendant political costs) but promises thorough internal revamp to hone itself into a modern business-oriented enterprise.
Given the operational preoccupations of the top management, the doubt is who will see this revamp through. And can it be long before the Railways face competitive pressures, on the earnings side from an improving highway network and for private finance from competing demands of transparently regulated —- and hence less risk-prone — sectors? That is the point when structural issues will need to be faced and the political cost-gain equation will crystallise.
(Courtesy: The Hindu Business Line Dated 23/02/2010)
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