Unless you have a vision, you cannot be a game-changer. The Indian Railways have done just that, given themselves a vision for the next 10 years that cannot be faulted for timidity. But the bolder the vision, the greater the challenge, and the question arises: Does it have within itself the wherewithal to deliver the vision and, most importantly, what has been its recent record. The short answer is it has conducted itself creditably in recent years and it is good in working out the nitty-gritty. But it has to substantially transform itself in order to be able to deliver the vision.
The railways’ total earnings, at around Rs 80,000 crore in 2008-09, have grown at a compound annual rate (CAGR) of 13.3 per cent during 2004-05 to 2008-09. Its inflation-adjusted revenue has kept pace with the national real GDP growth, so that its share of GDP has been stagnant at 1.18 per cent. Its profitability also improved perceptibly until hit by the double whammy of the pay commission’s report and the economic slowdown. The vision seeks to substantially up the railways’ size in the economy in the next 10 years to 2020 — to 3 per cent of GDP to a total revenue of Rs 2.7 lakh crore, that is a CAGR of 11 per cent.
To enable its vision, the railways need to invest Rs 14 lakh crore over the next 10 years. As against this, it has invested Rs 1.2 lakh core in the last five years (2004-05 to 2008-09). So, the average yearly investment has to go up by six times. The railways feel they can internally generate 64 per cent of this and would like the government to fund 36 per cent or Rs 5 lakh crore over 10 years. In the last five years, the government has provided budgetary support of Rs 43,000 crore to the railway plan. So, the idea is to raise the average annual budgetary assistance from around Rs 9,000 crore to Rs 50,000 crore, or over five times.
This is a quantum jump. For our good health and prosperity, as also for the safety of the planet, it is necessary to raise energy efficiency and reduce carbon footprint which rail transportation does. Plus, the welfare gains from the vastly expanding, affordable and safe rail transport need no elaboration. If rail transportation is extended to currently underserved areas, then the welfare gains, through greater equity, will be even greater.
So, there is a case for the country to be able to afford this as it will be for its own good. If this happens, then the trend of falling railways share of the total transport, from 89 per cent in 1950-51 to 30 per cent in 2007-08, can also be reversed. But to ask for a sharply higher level of public funding, the railways must create the confidence that they can run their affairs better, or more simply, be able to handle this kind of rapid expansion.
Over the last five years, the railways have done well along with the rest of the economy, but the mammoth organisation has also had to sway with the whims and fancies of the railway minister of the day. The railways are being currently carried on the shoulders of their 1.4 million employees, whose productivity has gone up substantially, by 46 per cent in the last five years. But it is at around 60 per cent of China’s, and considering the investment China is making, it will be a tough task to simply make sure that the gap does not widen.
So, the key question is, do the railways have the management capability to handle what they are asking for. The vision document makes some tentative points on organisational reform. It proposes decentralisation of decision-making (empowering the zonal and divisional levels further in financial and project management matters) to facilitate execution along with accountability. It also proposes reorganisation in terms of business lines like infrastructure, freight, passenger and parcel. It has further suggested that activities other than core transport can be successfully corporatised like Container Corporation, RITES and IRCON, so that the organisation runs on the basis of profit centres.
The vision document says such reform will improve efficiencies. The railways can assert they will be able to do this as they have already made credible gains in efficiency in the last few years. There has been perceptible improvement in the wagon turnaround, by 29 per cent in five years (2003-04 to 2007-08). The net tonne km per wagon per day (how much a wagon carries) has gone up by a CAGR of 7.5 per cent. The accident rate has also fallen by half over the same period.
But it is tougher to sharply improve on an already high base. What the government can do is initiate some of the organisational reforms listed above (accounting reform to shift to accrual basis is already on) before making financial commitments. There is already a clear internal commitment to inducting technology and using the public private partnership route extensively. The real task before the government is to figure out how the organisation can be made more professional and insulated against ministerial whims. Once this happens, resources can be assured.
