Let Railways Make Economic Sense - Debroy Committee - Swarajya

6/12/2015
LetRailwaysMakeEconomicSense:DebroyCommittee|Swarajya
Let Railways Make

Economic Sense: Debroy
Committee
The recommendations are not driven by a doctrinaire free market philosophy. Its a
pragmatic approach towards making the department viable.
Swarajya has procured a copy of the recommendations of the Committee for
Mobilization of Resources for Major Railway Projects and Restructuring of Railway
Ministry and Railway Board headed by eminent economist (also a patron of our
magazine) and NITI Aayog member Bibek Debroy.
In the report, the advisers recommended an overhaul of the entire system from
decision-making structure to accounting systems, from human resource management
to budgetary relationship between the government and Railways, from financing to
regulation and implementation of policies and programmes.
Advocates of liberal economics who must have turned ecstatic over the talk of trains
by private companies in this mornings newspapers must note that even the existing
private domains are functioning below par because of confusion over returns on
investment and the uncertainty of political intervention in their work, the committee
has observed.
Welfare
In a measure that is bound to irk existing employees of the Railways as well as make it
unattractive for candidates who aspire for a job in the sector for its perks and
comforts, the Debroy Committee has recommended that all off-line activities such as
hospitals, clubs, catering, real estate (for example, providing employees with living
quarters), etc be delinked from the department. But this would make eminent
economic sense, as no state-run public transportation system even of the most
welfare-driven socialist states in well managed economies carry this un-remunerative
burden.
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For that matter, since the government does not hire and fire on the basis of need and
performance, manufacturing of locomotives, coaches, wagons and their parts wouldnt
be a cost-effective operation. And so they must not be part of the Railway portfolio
either, the committee argues.
That does not, however, mean that the committee wants even the welfare measures to
disappear. Schools for wards of Railway employees may be moved to Kendriya
Vidyalayas, Debroy & Co have suggested.
Similarly, medical care is not being privatised either. The committee recommends that
for functions such as periodic medical examination, pre-employment examination,
medical boards, safe water and food supply at stations etc., the GMs/DRMs as well as
the employees could be given the choice to opt for services either through IRMS or
through private empanelled practitioners. For preventive and curative health care of
employees, the choice may be extended to the CGHS framework and subsidized health
care in private hospitals should not be restricted only to referral services.
As for security, the committee recommends that state governments bear the cost of
the Government Railway Police (GRP) while the general managers and divisional
railway managers should be free to choose between private security forces and
Railway Protection Force (RPF).
Money for salaries and pensions
The Railways has been finding it extremely difficult to pay the ever-burgeoning size of
pensioners. If the Sixth Pay Commission made it unmanageable, the Seventh in 2016
would threaten to cripple the railway economy. Therefore, for the departments long
term-economic viability, customer satisfaction and for being adaptive and flexible
organization, the Indian Railways should focus on business/customer units like freight
business, passenger business, suburban business, parcel business etc. This happens
to be a recommendation of the previous committee on railway reforms, too.
This portion is ambiguously worded. It does not explain where the money for everincreasing salaries and pension will come from. Is it being suggested that every
business unit, as the report calls the different wings of the railway department, will be
responsible for payment to its respective small units of employees and pensioners?
No, assured Bibek Debroy to me. If the government has these small cost centres, if not
profit centres, he said, it will get a clearer picture of the earnings and expenditure of
each. At least you know it is becoming clean, Debroy said.
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Now, if the government accepts this recommendation more on this in the section on
decentralisation the hurdle it has to cross is trade unionism. The unions are
expected to misread the new policy as the State asking these units to perform like a
market operator, which would mean winding up of some units altogether if they are
found unwanted by customers in large enough numbers!
They must note Bebroys quote: We are just flagging (the issue of retirement). It is
going to worsen. The bunching of retirement is probably going to be over by 2018.
Once you can tide over this period, you will be in better shape. This is not a solution (to
paucity of funds for pension); this is just flagging the issue.
Decentralisation
The money that DRMs have the power to use in projects is available in absolute
monetary terms as of now. The committee proposes that this fund be linked to
inflation so that the officer on ground is not stuck with paucity when prices of goods
involved rise. If the recommendation is approved, the divisions will run as independent
business units. The panel has further proposed that the head of the zone (GM) must
be fully empowered to take all necessary decisions without reference to Railway Board
within the framework of policies.
But the problem did not lie in money alone. Perpetual centralisation of the department
sapped team spirit out of railwaymen and they turned inward, competing with
colleagues to be in good books of the bosses and thus turned insensitive to customers
(passengers), the committee notes.
To address the issue of intra-departmental squabbles for promotions, the committee
has asked for an institutional mechanism to ensure that selected officers once
positioned against general management posts continue to perform that role for their
residual careers.
Once the zones are made autonomous, the Railway Board will have little role to play in
their day-to-day functioning and can become like a corporate board for IR policy
being determined by the Ministry of Railways and competition being ensured by the
RailwayRegulatory Authority of India (RRAI).
Programme implementation
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Among the agencies that execute Railways projects, organisations of different zones
have been found too large and unwieldy to be effective and, hence, recommended to
be brought under PSUs such as Rail Vikas Nigam Limited (RVNL) and Indian Railway
Construction (IRCON) Company Limited.
To address the issue of unwieldiness, the committee also seeks to merge five
technical services into one and three non-technical services into another if bringing
them all in one group is found to be not feasible. The five of the first category are
Indian Railways Service of Engineers (IRSE), of Signal Engineers (IRSSE), of Electrical
Engineers (IRSEE), of Mechanical Engineers (IRSME) and of Stores Service (IRSS). The
three of the second are logistical: Indian Railway Accounts Service (IRAS), Personnel
Service (IRPS) and Traffic Service (IRTS).
Financing projects
Improvement in internal resource generation and utilization of available resources, and
exploration of varied methods of financing are the committees solutions for the
Railways to emerge from its precarious economic condition. It recommends of
review of the large shelf of projects that have gone into time and cost overruns from a
zero base budget perspective. Only the small languishing projects can be fully funded
under the condition that they be completed in two years. Others are no longer
commercially viable.
Maintenance
Services such as cleaning of trains and stations, IT initiatives etc are performed in
parallel by multiple agencies resulting in sub-optimal performance. The committee
therefore finds a need to integrate and synergise such functions.
Accounting
Since government funding for the Railways has successively reduced as different
ministers have all looked for investments from private parties for peripheral-to-core
services, bad accounting practices acts as a deterrent for investment as it confuses
the planner about costs and the potential investor about a definite return on
investment. The committee has, hence, recommended that Railways switch to
commercial accounting. This Committee recommends establishment of a responsive
and transparent accounting and costing system as the first stepping-stone to a
commercially viable Railway system, the report says.
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Until you know what the rate of return is, whether it is public or private money, why
should someone come and put his money (into a project)? Debroy reasons. I am
borrowing, let us say, at 8 per cent either through IRFC or from the Japanese I
have to repay that. If my average return on a project is less than 2 per cent, how am I
going to pay back?
Let us prioritise the projects, Debroy said, and only choose the ones that are viable
or the ones where I have explicit budgetary support either from the national or a
state government concerned.
On budgets, the panel observes that the government spends so much on revenue
expenditure that it has little to pour into capital expenditure. And then, the Railways
pays high dividends. As a solution, the committee has proposed a review the dividend
policy for IR and provide it with a GBS (Gold Bullion Securities) net of the dividend
payment. This would enable the IR to apportion more money to its DRF (Depreciation
Reserve Fund) for asset renewal aligned to its arising.
There is plenty of scope for cost saving if you decentralise. Decentralise not only to
the level of the DRMs but even further down! You allow the DRM to choose since he
has an independent cost centre whether, say, he picks security personnel for trains
from the RPF or elsewhere.
Winding up the conversation, Debroy disapproved of the way The Times of India has
interpreted the report. The recommendations of the committee have been lying in
some computer of the Railway Bhavan for some time. A staffer must have leaked it,
resulting in a petty story by the said newspaper, the eminent economist believes.
The discontinuation of Railway Budget ultimately and its replacement with a regulator,
which the newspapers have talked about, actually appears in the report in the following
manner.
Observing that the private sector entered Railways in 1992, the committee also noted
that the schemes for private players failed to serve the goal due to high costs and
lower returns, policy uncertainty, lack of a regulator to create a level playing field, the
lack of incentives for investors, and procedural/operational issues have significantly
restricted private sector participation.
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To prevent the same organization from dealing with the prime functions of policy
making, regulatory function and operations, the committee strongly recommends
establishment of an independent regulator: the Railway Regulatory Authority of India
(RRAI), with a separate budget and to be independent of the Ministry of Railways.
The RRAI will have the powers and objectives of economic regulation, including,
wherever necessary, tariff regulation; safety regulation; fair access regulation,
including access to railway infrastructure for private operators; service standard
regulation; licensing and enhancing competition; and setting technical standards. It will
possess quasi-judicial powers, with appointment and removal of Members distanced
from the Ministry of Railways. The issues like consumer complaints, including class
action complaints will not be addressed by RRAI, the report reads.
This is the most significant step recommended for depoliticisation of the Railways.
After all, a separate Budget for the Railways is a British imperial legacy that has
outlived its utility now only serving the purpose of successive railway ministers (not
the current one) brazenly overloading the tracks that pass through (or lead to) their
respective home states. The propensity to artificially keep the passenger fares lower
has not served the department either, even as the freight service continued to dwindle.
Other panellists in the committee were Kerala State Planning Boards KM
Chandrasekhar, former CMD of Procter & Gamble Gurcharan Das, former MD of the
National Stock Exchange Ravi Narain, Prof Partha Mukhopadhyay of Centre for Policy
Research, former financial commissioner of the Railways Rajendra Kashyap,
Department of Economic Affairs Ajay Tyagi and Department of Expenditures Ajay
Narayan Jha.
On a sombre note, the committee has noted that the recommendations of the previous
committees have hardly been implemented.
Report of the Committee for Mobilization of Resources for Major Railway Projects and
Restructuring of Railway Ministry and Railway Board: part 1, part 2 and the concluding
part.
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