From passenger to goods: India needs sweeping reforms in rail sector

The Modi government deserves credit for finally pushing the long-pending reforms agenda in the passenger segment. There is no escape from it either as the railways spends Rs 192 to earn every Rs 100 from passengers. However, this should be just the beginning. India needs sweeping reforms to make railways a cheap transporter of goods, writes Pratim Ranjan Bose.

New Delhi: Road movement is hugely energy intensive and costly and India doesn’t have a better and more efficient road logistics sector than either the USA or China. Yet, roads carry 60 percent of India’s cargo – higher than either of those two countries – and 85 percent of passengers.

If uncompetitive tariff is eroding rail’s share in freight; passengers are giving the railway a miss ignoring cheap fares. Since 2012, railway’s passenger traffic has remained stagnant at around 800 crore. The loss cannot be restricted only to the upper class, which contributes barely two percent of the volume.

There are two clear takeaways from this analogy. First, with over 12 lakh regular employees, earning an average salary of Rs 11 lakhs per annum, railways cease to be the lifeline of Indian economy. It is so costly that cargo users are finding roads a cheaper option.

Secondly, the politics of keeping passenger fares abnormally low (lowest in the world), is losing the social traction, thereby creating a golden opportunity for market-driven reforms. It is time for India to follow the global experience of large scale privatization and competition in the rail sector.

Long pending reforms

Till 1980’s, railways in most countries were run as a government arm. Globalisation and competition changed the paradigm beginning in the 1980's. Japan reformed its railways in 1987, followed by British Rail (1993).

Sooner or later, the fever caught the entire world. Both China and Russia undertook thorough reforms in its railway operations at the beginning of the last decade. South Korea restructured rail services in 2005.

The major takeaways of such structural changes were: doing away with below cost provisions of passenger services, corporatization and unbundling of railway operations, allowing the private sector to play a greater role with special focus on market making and customer service.

Some countries like China, even abolished the ministry of railways and brought it under the transport ministry so as to ensure better convergence of activities. Almost all countries ensured competition within a strict regulatory environment.

India too has been weighing railway reforms since the 1980's. Endless committees were formed. Two of them Railway Reforms Committee (Sarin) 1981-85 and, Indian Railway Report (Rakesh Mohan) made-wide ranging recommendations. But the recommendations were implemented in bits and pieces without much focus on end-to-end reforms.

For example, CONCOR was incorporated in 1988, as a subsidiary of Indian Railways, to spearhead railway logistics business. But subsequent recommendations of private participation in the sector didn’t find much wind. Indian Railways monopolised the sector. A 2006 policy to allow private container trains failed due to restrictive practices of CONCOR.

Special Freight Train Operator Scheme, Automobile Freight Train Operator Scheme – both introduced in 2010 – failed to attract private players and improve rail’s share of cargo. Rail bureaucracy, that is still run on colonial principles, wanted to dictate terms on the market and the market rejected it.

Often the recommendations were implemented so late that projects lost crucial market opportunity. The Dedicated Freight Corridor recommended by Rakesh Mohan is yet to come up.

The DFC project was approved in mid-2000. First major contract was awarded a decade later in 2013. The Narendra Modi government is now focusing on its implementation and expansion in a time-bound manner.

Positive steps

For a country which is often referred (in the neighbourhood) as a ‘nation that talks’, the Modi government deserves credit for finally pushing the envelope in the passenger segment. There is no escape from it either as the railways spends Rs 192 to earn every Rs 100 from passengers.

The policy of overcharging freight backfired, as cargo moved to the road, and total operating ratio hovered at dangerously high levels of 97-98% against the minimum requirement of 85%. As railways became dependent on budgetary support, politicians asked for their pound of flesh.

As rail minister, Mamata Banerjee forced railways to take up three metro projects in Kolkata. All are incomplete after a decade. If the existing Kolkata Metro Rail experience is of any significance, each of these new lines, once completed, will add up to railways’ mammoth revenue gap.

Such examples are norm in Indian Railways which invested in coach factory in Congress president Sonia Gandhi’s constituency at Raebareli in UP, and wheel factory at the then rail minister Lalu Prasad Yadav’s constituency at Chhapra in Bihar.

No one asked why railways should utilize its meagre capital expenditure budget of two percent of revenue, in non-core activities and why passengers should suffer bad coaches when private investors could do the job better.

Beginning of a change

By inviting private participation in running 151 passenger trains in 109 routes, the Modi government finally questioned the prevailing paradigm.

For the first time, the monopoly of railway coach factories on passenger coaches will be challenged as private operators are free to source rolling stock. Railways will earn revenue and their drivers and guards will be employed on private trains.

But this is not enough either to save Indian Railways or make it a contributor to national growth by ensuring cost-effective logistics solutions. Time has come to undertake sweeping reforms if not at one go, then surely in a phase-wise manner.

Railways should own the tracks and stick to its core competence of operating the rail network, everything else be either in the hands of the private sector or in joint venture, where the private sector should be in the driving seat. Virtual monopolies like CONCOR must not be allowed.

A reformed railway will have assured flow of revenue and better headroom to invest in tracks and technology. It should be run by minimum manpower. Private players can manage the rest of the hassles and put railways’ huge land assets to profitable use.

If private airlines and airports can revolutionise air travel and offer connectivity to far flung places in the North East or other parts of the country; there is no reason why the model cannot be adopted by railways.

There is no reason why rail travel has to be a distressing experience right from ticket booking to haggling with porters at stations. There is no reason why goods trains cannot follow timetables and cannot offer cheaper transport options than roads.

(Pratim Ranjan Bose is a Kolkata-based Senior Journalist. Views are personal.)