Like his colleague in the ministry of finance, has Railway Minister Lalu Prasad also blown it in his last year in office? Was his dream run, like P Chidambaram’s, also largely based on a huge buoyancy in the economy? That’s tempting to say, given that when the final numbers for the year come in (the figures are projected based on data till December, and an upturn in trend in January), the critical Operating Ratio could well be pretty near what it was when Prasad took over. There’s also the fact that investment and depreciation levels are projected to stagnate for the coming year.
While tempting, it would be unfair. For one, while it’s true that, at 88.3, the actual Operating Ratio —which measures expenses to revenue —is much higher than the budget estimate of 81.4, once you remove the excess expenditure on account of the Pay Commission salary hikes (Rs 8,000 crore), the Operating Ratio is lower than the budget estimate. More important is the turnaround in the Railways’ thinking that Prasad has brought about, a thinking that’s best documented in Bankruptcy to Billions, a book just brought out by Prasad’s Officer on Special Duty Sudhir Kumar and Shagun Mehrotra, a PhD student at Columbia.
At the heart of the turnaround, as Kumar and Mehrotra bring out so well, is the sharp understanding of what’s political (passenger fares for the unreserved sections) and what’s not political (freight rates) in the Railways’ functioning (it appears just a fifth of all functioning is what can be called ‘political’); and the decision by Prasad to stick to only ensuring his political ends were met while not interfering in other decisions. Second, to look for opportunity (so, when there was a boom in iron ore exports, the Railways hiked rates and got an extra Rs 9,000 crore — a cost, it’s important to note, paid for by global consumers). It is foolish, as the authors bring out so sharply, to think that the opportunity arose from the Railways’ natural monopoly (its share has gone down in most areas!) — the opportunity is linked to the quality of services. Thus, in the case of iron and steel, where the Railways carry goods only from one station to the other, users like Tata Steel have to employ trucks to take the goods from their factory to the station and vice-versa — as a result of this inconvenience, users prefer to use road transporters who do end-to-end delivery and the Railways’ share of the iron and steel business has fallen from 70 per cent in the early 1990s to around 40 per cent today. In the case of iron ore, however, the Railways transport the goods from the pithead to the factory, so it’s a door-to-door service of the type private transporters offer! — which is why the Railways’ share has remained steady over the years.
Third, and perhaps the most important, was the understanding that, while the Railways’ costs went up only marginally when greater loads were carried, the revenue potential rose manifold. The book, by the way, is a must-read for all management students for the easy manner in which it explains this. Which is why, for instance, the Railways increased the loading of freight trains by 6 tonnes per wagon and got an additional Rs 6,000 crore a year from this; adding 3,000 additional coaches in popular mail and express trains which had long waiting lists earned another Rs 3,000 crore. A graph in the book has two straight lines, a much steeper one on how the earnings per train rise as more coaches are added and the other, a less steep one, on how costs rise — once the data is presented in this manner, the solution of increasing coaches is the obvious one. Bung in a few more passengers per coach, increase the number of coaches and you have Prasad’s famously populist air-conditioned Garib Rath — fares are around half those for the normal AC III tier Rajdhani but since costs are down from 80 paise per passenger kilometre to around 32, it still makes money!
But more than that, the real importance of the turnaround is the lessons it gives for the running of public utilities, of the fact that it is possible to do a lot for the poor while not compromising on profitability, if only the political leadership is able to understand it — and the technocratic leadership has the ability, like the Railways did, to deliver on its side of the bargain. Going by the Railways’ example, it is possible to still give cheap electricity to rural areas while raising rates to economical levels in urban areas — cutting theft will make it a win-win for everyone since rates in urban areas will also not rise that much. But the political class has to be smart enough to realize this — of course, if it is sharing in the theft, it will never allow this to happen! Similarly, it is possible to keep bus fares quite low and make money, but provided buses are running with great frequency (ex-Maruti chief Jagdish Khattar turned around the UP Roadways Corporation in exactly this manner). The problem, however, is that India’s political class interprets its mandate from the people as a licence to interfere in everything; and the bureaucratic/technocratic class uses the possibility of this interference as an excuse to not deliver on anything. It’s a marriage made in hell.
