Indian Railways

published in B&E

Does Laloo really deserve all the accolades for engineering a ‘turn around’ of railways? Are the surplus figures quoted in his budget speech the true reflection of the progress achieved?

“A few years back, Laloo used to shout at the top of his voice that he will not allow the privatisation of Railways – same Laloo Prasad Yadav is now the chief proponent of outsourcing even the core functions of railways,” says Gopal Krishna, a trade union leader with Centre of Indian Trade Unions (CITU) in a conversation with B&E. “And all this talk about outsourcing & PPP (public-private partnership) is a euphemism for privatisation,” the union leader critically added. One may agree or disagree with the CITU leader, however, what one cannot deny is that PPP is the new mantra of Indian Railways (IR), being chanted with great devotion & fervour. Yes, over the past few years, a discernable shift in the IR mindset has become apparent. A fertile ground is being diligently laid to transform the behemoth into a dynamic & agile organisation, capable of optimally utilising its assets to enhance profits. Now, the big question is: does this new found love to increase private participation in IR affairs, clash with its social objectives? “It is not correct to view IR as just a corporate body or having corporate functions. It is a part of social fabric of the country, having a far greater role than just meeting economic needs of the country,” Y. P. Anand, former Chairman, Railway Board told B&E. But how does an organisation meet its social obligations, if it continues to operate in the red for years on end? With operation ratio plummeting from 82.6 % in 1994-95 to 98% in 2001 & with staff pensions & salaries accounting for 44% of the total revenues earned in 2004-05, IR was indeed mired in a mess towards the beginning of the 21st century. It was in no position to honour its commitment to pay dividends to the government. A pall of gloom had spread along the 64,000 kms railway networks & 7,000 stations across the nation. It is perhaps these dark hovering clouds of bankruptcy, which led the government appointed Rakesh Mohan Committee to recommend massive ‘structural changes’ for IR, suggesting privatisation as the panacea for the ailing gargantuan.

“Rakesh Mohan would see the issue purely through liberal economist’s view while Indian Railways is a body which is representative of Indian population,” added Y. P. Anand. Since the very word ‘privatisation’ was not considered to be politically correct, the report was obviously put on the back-burner – a via media was sought to turn things around in the IR – chaperon in the private actors, desperately seeking to enjoy a share of pie in this rather large organisation- accounts for 2.3% of its GDP and owns roughly 45,000 hectares of idle land. And what followed this decision to drop privatisation & introduce PPP, is now history. A big media campaign was launched hailing the Railway Minister Laloo Prasad Yadav as the messiah, who through his sheer management skills, had turned around an almost bankrupt public sector enterprise into a profit earning corporation. (In 2007-08 budget, IR generated a surplus of $4.5 billion or Rs.200 billion on revenue of $16 billion. Astonishingly, the revenue & surplus targets for 2007-08 stands at whopping $ 18 billion & $5 billion respectively.) However, Laloo’s tryst with surpluses seems to nearing an end. The recent media reports & Comptroller and Auditor General (CAG) of India’s indictment of the IR’s accounting procedures have revealed that at least Rs.26.89 billion (roughly 13%) have been reflected in the 2006-07 surplus figures not because of any increase in the business, but primarily because of altered accounting policy adopted by IR. Had this 13% not been added the ‘surplus’ figures would have been much closer to what was achieved during the 2005-06 period. And this would certainly have prevented Laloo from receiving accolades from top B-schools across the globe. The question is: did Laloo encourage fudging of figures or was he assisted by the MNCs to pave the way for private entry? Private players too should be held responsible because the IR ‘turn around’ is being celebrated as the victor of PPP. Needless to add that in any partnership both the brickbats & the accolades must be equally shared.

It is a widely known, since Independence, scores of IR functions have been performed by contractors, then why this clamour about private participation now? “IR have a natural monopoly over rail sector in India. The private sector is not enthusiastic in venturing into rail industry.” Anwarul Hoda, member, Planning Commission, told B&E. Endorsing the view, N. M. Balasubrahmanyam, Secretary General, Chartered Institute of Logistics & Transport, told B&E. “A lot of investment is needed by a company, which requires a good return, as good a return as in other industries. Hence, privatisation isn’t likely to take off in a big way in India,” Not withstanding the comments, the fact is that both the MNCs and the domestic private players are queuing up to grab the IR contracts both in core & non-core sectors. As opposed to the innocuous contractors’ of the yesteryears’– the fear about the present day private contractors results from the enormity of contracts (see box – IR is seeking investment to the tune of Rs.3,500 billion, in 11th Five Year Plan).Only fools would oppose improvement in financial viability & health of an organisation & therefore, its capacity to meet its social responsibility. But if the process of improving the bottomline is undertaken in a dubious manner; paying scant regard to the long-term sustainability of the reform process, credibility of the participating actors takes a nosedive. Then, whether you name the process as privatisation, PPP or simply an effort for public good, it is bound to be opposed tooth & nail by the public.