Open Forum

New Delhi, 7 December 2006

Railway Corporatisation

Private Sector Participation must

By Dhurjati Mukherjee

The modernization of the Railways can only be accomplished through corporatisation and this has been realized to maintain its growth path. Way back in the year 2001, the Rakesh Mohan committee’s recommendations that included decentralization power, encouragement to private participation and eventual corporatisation of the railways and all these are in the process of steady implementation.  

The Rakesh Mohan Committee report was not quite favoured when it was submitted because political and business environment was not conducive for such a reform-oriented measure. However, over the years a lot of development has taken place, necessitating revamp of railways.

The most important challenges before the Railways are: reorganization of the core transportation network into key components – freight, passenger, suburban, fixed and shared infrastructure; track renewal and modernization so as to ensure faster movement of trains; expansion of the railway network; ensuring proper safety standards to reduce accidents; improving flexibility and cost competitiveness; and meeting the challenge from private airlines which have drastically reduced fares (almost like AC-III tier rates).

To cope up with these developments, a lot of expenditure and various other efforts would be imperative for which corporatisation to become necessary. The Rakesh Mohan committee had predicted that the Railways would not be able to generate the kind of resources needed to give a market rate of return on additional debt and fresh preference capital. It had stated that the low-growth business would drive the railways to “a fatal bankruptcy”. In 16 years, the Government will be saddled with “an additional financial liability of more than Rs 61,000 crores”, the report added.

As a first step, the Government has set up an advisory group to chart a roadmap for public-private partnership projects in the 11^th Plan (2007-12). The political will for corporatisation to improve the functioning of railways has become evident as the Railway Minister recently stated the need for close coordination and liaison with the private sector. According to him, private sector participation would be needed in modernization of Railway stations, setting up of agro product outlays at railway stations, construction of sidings and logistic parks, wagon manufacture, port connectivity and setting up of a dedicated freight corridor. The process of private sector participation has already started and experience shows that worldwide it has taken a minimum of 10 years for this to fructify.

It may be mentioned here that Vajpayee had on January 24, 2003 created the Rail Vikas Nigam Limited with the responsibility to mobilize resources and execute projects needed for the Railways to grow. Even as the RVNL set about getting its act together, the mandarins in the Railway Board did not lose any time in handing over 56 projects, involving line capacity, port connectivity and four bridges. The assets after creation were to be transferred to the Railways for operation and maintenance though the RVNL would receive ‘access’ charges, providing it with a steady source of revenue.  

It was also decided that projects not yet taken up by the zonal Railways construction organizations and the Central Organization for Railway Electrification would be taken up by the RVNL. The RVNL’s task was to engage consultants to establish ‘bankability’ of projects, restructure projects and develop new financing models. So far the response to private sector participation has been encouraging. Built-operate-transfer schemes have also generated adequate response from the private sector.   

A viability study for the upgradation of the golden quadrilateral for increasing the speed of freight trains (and also express trains) is under way. In this fiscal year, the RVNL is expected to raise Rs 1000 crores from the market – mainly through the Indian Railway Finance Corporation. The Asian Development Bank (ADB) will also provide Rs 400 crores and the Railways will chip in an equal amount as budgetary support. 

The Railways are thus faced with huge expansion plans, track renewals and meeting safety standards (due to frequent accidents) with very little resources at its command. An investment of over Rs.300,000 crore by the year 2015 are proposed in a host of activities such as gauge conversion, freight corridor along with upgradation of feeder routes, asset renewal and augmentation of high density routes and increasing the manufacture of rolling stock. 

The efficiency of the Railways is regarded as quite low as also the service it provides to the passengers but efforts are being made to improve the functioning. The Railway Safety Review Committee headed by Justice Khanna had observed: “A single flaw in the 62,495 route km. of track that crisscrosses the country, a defect in the 7500 locomotives, 40,000 coaches and 2.5 lakh wagons that haul more than 11 million passengers and over 1.2 million freight every day, an indication on one of the thousands of signals, a mistake or an act of negligence by one of its 600,000 frontline staff directly associated with train running, even a rash act by one of the million road users who daily negotiate about 40.000 odd level crossings spread across the system, an irresponsible act of carrying inflammable goods – any one of these possibilities has the potential to cause a major tragedy”.

Indian Railways are a highly labour-intensive system. It is therefore not surprising that two-thirds of the accidents are on account of human failure. Thus technology upgradation has started in order to reduce dependence on the human element, as is the case in most other countries. This is, however, a costly process. The pace, stage and level of technology depends on extent of investment, size of operations, increasing demand of traffic and assimilation of technology.

A Railway safety fund has already been created to clear the backlog of arrears of track renewal, rehabilitation of distressed bridges and overhead signaling gears, coaches and wagons. This has a corpus of around Rs 20,000 crores out of which the major part (around 70 per cent) is expected to be provided by the Centre and the remaining by the Railways through a safety surcharge which has been in place since October 2001.

There is an imperative need to revamp the whole railway system so that there is improvement in its viability as also in its quality of services. All round safety standards have also to be ensured. Moreover the expansion of the railway system also cannot be ignored. All this is definitely an enormous challenge that, experts feel, can only become realistic through proper planning and phased privatization.  Parochial interests of politicians should not come in the way of implementing a viable action-plan for the coming 10 years of the priorities and challenges before the Railways.

Lalu Prasad Yadav has already declared that his intention was to make Indian Railways one of the best in the world and the private sector was being encouraged to participate in its non-core activities. Thus the government’s is steadily moving towards corporatisation to make the Railways viable and healthy along with keeping its social commitments. With surplus of more than Rs 13,000 crore, the Railways are poised to surge ahead at a fast pace in the coming years.---INFA

 (Copyright, India News and Feature Alliance)