Expert panel’s approach may do more harm than good

Aarti Khosla

The report of the expert group (Rakesh Mohan Committee) on Indian Railways is a subject matter of much debate among Railway personnel. Corporatisation/privatisation are the buzzwords of this report. Is corporatisation of the Indian Railways the only solution to the ills being faced by the railway organisation today? The expert group does not seem to be sure itself when it says, “... there could be other approaches.”

Though the committee has drawn the conclusions—which the reading of the report indicates are mostly inconclusive — by looking at other railway systems around the world, particularly those of Japan, Germany, France, Britain and Sweden, they still feel, and rightly so “that our solution has to be our own”. Then why suggest a solution of which the expert group itself is not sure, knowing well that tampering with a system as huge and sensitive as the Indian Railways without being confident of the approach of so-called ‘re-invention’ is bound to play havoc not only with the system but also with society and the nation at large for which the Railways play a crucial role.

The confusion in the minds of the expert group is perhaps because of the difficult nature of the task entrusted to them. The chairman of expert group, Rakesh Mohan, is honest enough to admit in his forwarding letter while submitting the report to the railways ministers that “Indian Railways is a large and extremely complex organisation...it is not easy for outside experts to grasp the many complexities that govern the operations of this massive enterprise.”

Unfortunately, the complexities have not been grasped fully by the expert group in spite of the presence of a few retired or soon-to-retire railway officers in this group composed of 18 experts majority of whom are outsiders and thus non-experts. How can bankers, management consultants, or a representative of an international vendor of locomotives or the head of a little known infotech company have the necessary expertise to suggest ways to take the Indian Railways out of the financial morass they are in?

Whether the Railways should be managed by the state or by private companies or a mix of both was the question looked at by an expert committee as far back as 1920. The committee was headed by William Acworth, who was a world-renowned authority on railways. The Acworth Committee consisted of 10 members, all experts either in Railway matters or finance and administration. The committee supported the case for state management of the Indian Railways in their report published in September 1921. The landmark decision about separation of railway Finances from general finances was also the outcome of this report. The report was accepted in 1924.

It is not our case that what was suitable in 1924 continues to remain suitable for all times to come. One should not review matters in the light of new developments. There is certainly a need to inject some life-saving measures in the system that is so vital for not only national economy but also for security and unity of the country. Is corporatisation the answer? May be, if economy is the sole consideration, then economists may well be the right persons to explore the remedy. That is, however, not the only purpose the railways are required to serve in this country. They are integral to the unity and security of the nation. Therefore, the observation of the Acworth Committee that “if there is one thing the Railway history teaches, it is that centripetal forces are stronger than centrifugal forces” remains valid even today.

The dual nature of the system — a commercial organisation and a public utility service — has caused distortions in the finance management of the Railways. It is possible though to integrate both without causing financial loss to the enterprise and without corporatisation of the Railway administration.

The prescription given by the committee for curing financial ailment is not even original or the result of any fresh mental application or grasp of the basic problems. The World Bank has been suggesting this remedy whenever the Indian Railways approached them for financing of any project in the early 1990s. The conditionalities for grant of funds recommended by the World Bank teams have always been: “Corporatise its administration, privatise its various offline activities as also its captive production units and downsize its numbers.”

Similar recommendations and concerns were expressed by a committee in 1997, which was financed by the Bank to study “organisational structure and management ethos of the Railways.” As a result of all these suggestions some initiatives were taken to spin off some of the non-core activities like catering by setting up a separate corporation. That there is a legitimate scope for privatisation in some of the non-core activities of the Railways cannot be denied.

What exactly ails the Indian Railways? Why has it arrived at this critical period in its financial health? Before looking at this question, let us not forget that the financial health of the Indian Railways is linked to the national economy and vice-versa. There are periods of ups and downs in every business, including the railway business. After the state assumed full control in 1924-25, railway development passed through three-phases — exceptional prosperity up to 1930; unparalleled depression and then the phase of the Second World War. The Indian Railways were in such a bad shape in the 1930s that moratorium on interest payments had to be declared. At the end of the World War when the country’s partition took place.

The regrouping and nationalisation of the Indian Railways was complete with the integration of Indian princely states and addition of another 7,560 miles to the Indian railway system by the time India became a Republic. All this was possible because of the professional approach of the Railway Board and the recommendations of Kunzru Committee in the background canvas of an understanding political leadership.

The problems of rehabilitation and replacement carried over from the Depression of the 1930s which had remained neglected during the Second World War and the consequent problems of strained railway resources that had got further accentuated in the wake of Partition became the immediate concern of Railway planners.

In the First Five-Year Plan, the special emphasis was on rehabilitation and replacement. The focus of the next two plans was to build up adequate transport capacity so as to meet additional traffic requirements. The Fourth Plan renewed emphasis on the modernisation of the Railways and improvement of operational efficiency. During all these years, the Indian Railways were on the right track. It is, therefore, not correct to say, as the expert report says, that “the planning system used by IR is one of the most powerful mechanisms ever designed by mankind to avoid change and embed (sic) the status quo.” This is grossly unfair to the visionary planners who were responsible for the remarkable turnaround of IR in the 80s as well as in some other periods of IR’s glorious history. It is for nothing that the late Madhav Rao Scindia’s period, associated with computerisation of passenger reservation system (PRS); fast inter-city trains and quality of service, did wonders for Railway finances as well as for the morale of the Railway men.

Unfortunately, thereafter the decline started again. As the expert group has also realised, the 90s were a bad decade for IR. Arbitrary announcement of projects which flouted even the basic procedures of scrutiny were the order of the day. The profligacy in selection of projects was obvious when earlier planning on the basis of 5 per cent growth in freight traffic was altogether shelved and instead the scare resources were diverted to populist and unproductive schemes like gauge conversions; laying of unremunerative lines; creation of new railway zones etc.

(The writer is former Executive Director, Finance, Railway Board)