How to transform Indian Railways

Indian Railways should immediately corporatise its production units and construction wing, segregate its passenger and freight businesses, and restructure the Railway Board

The beleaguered Indian Railways (IR) has now appealed for corporate benefactors to step in, to get its trains and stations cleaned, according to recent newspaper reports. Caught in a low incremental growth trap, and continuing to live beyond its means, IR appears to be going the Air India way.

How could the IR management remain oblivious of the gathering storm? Freight output and passenger traffic recorded a dismal 0.26 per cent and 0.53 per cent compound annual growth rate (CAGR) over the period 2014-19; but its working expenses clocked 5.54 per cent CAGR, far beyond its gross earnings, at just 4.09 per cent. In the first five months (April-August) of FY20, freight receipts are short by 15.6 per cent and passenger earnings by 5.1 per cent of the budgeted amount; gross revenues are 14.1 per cent less than budgeted, but working expenses are 2.7 per cent higher than budget estimates. 

IR’s ills are both multifarious and well-known — acute capacity crunch on arterial routes, overstrained terminals, irrational fare and freight structure haemorrhaging its finances, and warped investment priorities. Its capital expenditure of over Rs 5 trillion in the last four years shows no respite despite the capacity crunch. IR is moving towards a debt trap. Its lease hire charges keep mounting — the provision of Rs 11,489 crore for FY20 amounts to 5.6 per cent of working expenses. The wage bill, budgeted at Rs 86,554 crore, along with Rs 50,100 crore appropriated to the pension fund, accounts for 66.9 per cent of working expenses (Rs 2.05 trillion for 2019-20). 

IR has failed to follow simple business norms of optimally pricing its services and judiciously restructuring investments. Its passenger business consumes two-thirds of its resources, but yields one-third of revenues. Cross-subsidisation of passenger services means it is out-priced in the freight market. Scarce resources are spread thinly on scattered projects, providing little tangible relief on congested routes. Important capacity-enhancing corridors, if fast-tracked, would yield the desired benefits.

A rigid bureaucratic structure is antithetical to a business ethos. Most railways the world over, including in Russia, China, Germany, France, and the UK, are autonomous corporate entities. IR must shed the ambivalence inherent in its widely — and mistakenly — perceived role of a departmental undertaking with a public service obligation. 

The IR management has just introduced ten “Sewa Service Trains”, most traversing only 30-100 km. Such short-distance “regional” trains devour scarce track and terminal capacity, and cause maximum losses among passenger services. Non-suburban commuters availing of season ticket concessions for up to 150 km travel constituted 22.8 per cent of total non-suburban passenger traffic in 2016-17, but yielded only 1.2 per cent of revenue! Besides systematically discouraging short rail journeys, IR needs to corporatise “regional” and suburban services.

Despite the steady induction of expensive technologies and the outsourcing of a slew of activities, IR is over-staffed. It has as many as 150 officials of the level of joint secretary and above, crowding Rail Bhawan. The shears should have been wielded first in Rail Bhawan and then right across the system.

IR should immediately corporatise its production units and construction wing, segregate its passenger and freight businesses, and restructure the Railway Board. It could integrate civil engineering with signalling, mechanical with electrical, and merge material procurement with, say, finance. To enhance the Board’s cohesion, one member each should be made responsible for (a) freight logistics services along with information technology; (b) the passenger business; (c) infrastructure — track, signalling, electrification, land and buildings; (d) rolling stock and equipment; (e) HRD, including industrial relations, vigilance, and safety; and (f) finance, including accounts and material management). The chairman would be the CEO, handling overall coordination, planning, R&D, and external relations.

Also, senior general administration positions in IR, such as heads of divisions/zones and members of the Board must be manned only by those who are exposed to the rigours of operations in the field and interaction with customers. 

The Bibek Debroy Committee found that “IR’s efficiency was better with 9 zones than with 16”. It would be prudent to restructure the organisation, including streamlining the traditional four-tiered organisation into a three-tiered system. If required, IR could thereafter re-draw the geographical areas of its 16 zonal administrations, even increasing their number to, say, 22-25. Concomitantly, large station complexes, major freight centres, maintenance depots and installations should be placed under empowered area managers.  

Since the mid-1990s, China Rail has continuously launched extensive reforms, including drastic restructuring, downsizing, divestment, and stringent accountability. CR, already the world’s most dynamic railway system, carries a quarter of the world’s rail traffic over six per cent of the world’s track length. CR lagged behind IR until some thirty years ago; today, it is the global leader in rail technology. IR needs an innovator’s “creative destruction” and leadership aimed focusing its energies.    

The writer is former chairman, Container Corporation of India