Where's the magic?

Recent reports, including those in this newspaper, suggest that much of what was seen as Railway Minister Lalu Prasad's magic may just be wearing off. At a time when the economy continues to grow at a fast pace (Q1 GDP rose 9.3 per cent over that last year), the railways don't seem be growing at the same pace "" the April-July growth in freight traffic this year was 6 per cent against 10 per cent in the same period last year. And the results of an application under the Right to Information Act got another newspaper to point out that over 13 per cent of the increase in surplus last year was a result of a change in accounting procedures. In other words, as the experts pointed out when the prime minister and others started praising Mr Prasad's turnaround of the Railways, much of this was due to the single decision to allow the railways to increase the loading levels by around 18 per cent "" while Prasad needed to be congratulated on the decision to allow this, the problem was that this increase in loading was not something that could be replicated easily. It was a one-off thing.

Sure, while the tracks in most areas can take another increase in axle-loads, and countries like the US use even heavier axle-loads, the Railways do not have the wagons that allow this "" building these wagons, and even building lighter ones that allow more freight while keeping the weight on the track the same, are all possible solutions, but only in the medium to long term. Apart from what this says about the Railways' ability to sustain the turnaround, the story also highlights the sad shape of some of India's premier management institutes such as the IIM Ahmedabad, which did a case study highlighting the turnaround without underscoring its transitory nature.

The moral of the story is a simple one: you cannot turn around an organisation without making serious reforms, and there are few instances of this happening in the railway ministry, apart from the small changes that have begun to take place by allowing private sector players into the container traffic segment "" the results of this are gratifying, but the experiment needs to run for a few years before any meaningful judgment can be made. Right now, the truth is that the railways are extracting a heavy price from the economy. Since there has been no meaningful change in the huge subsidy given to passenger traffic (the ratio of passenger tariffs to freight tariffs in India is 0.33 in India in comparison with 1.3 in China), this is made up by overcharging on freight. In the case of coal, for instance, the Railways charged Rs 13,134 crore in 2004-05 on a total coal production of Rs 30,660 crore. This makes freight rates on coal perhaps the single-largest reason why the sector is in the red in a country that is so starved of coal. All this, interestingly, happens at a time when the Railways are announcing a reduction in freight rates. The way this is done is by reducing the freight rates on different classifications of cargo, but at the same time, by re-classifying different types of cargo. So, the rates on, say, Category II cargo, may be cut by 5 per cent, but if you move the goods in this category to, say, Category I, where the rates are, say, 5 per cent higher, the actual costs go up even though the nameplate tariff levels come down. At the end of the day, we need to see real reforms on the tracks.