By Jatin Bavishi
Foul smelling compartments, overpriced food products, and petty commodity selling hawkers invoke vivid memories to almost every Indian household. The mighty public carrier has been instrumental in connecting the heart and soul of India. Even at a time when air travel has been brought within the reach of the middle class, for most people, it cannot replace the intimacy that railways offer. The sector has sadly been in perpetual distress.
Caught in a time warp
Post-independence, railways was dedicatedly brought in the ambit of Government regulation. However, successive governments used the carrier as Kamdhenu, the proverbial Holy Cow in the Hindu Mythology; revered hyperactively but exploited excessively. Although theoretically speaking, Public Sectors operate for a social cause and not necessarily for profits, political populism has eroded its financial position. Its Operating Ratio (OR) is 95, which means that it spends roughly INR 95 to earn INR 100, a very thin margin considering the requirement for modernization.
In a recently conducted audit by Comptroller and Auditor General (CAG), it was found that the cleanliness and hygiene were not maintained in the catering units on Stations. Lots of cases of inaccuracies and misrepresentations were cited in the report. Passenger growth was registered at only 0.3% despite it being the cheapest form of transportation.
The Railway Ministry is currently using a consortium of measures to revive the sector. In the current fiscal year, the ministry is planning the Station Redevelopment Programme (SRP) to rejuvenate 400 stations and this would entail an investment of INR 1 lakh Crore. Over the last month, Rail Bhavan in Delhi has seen delegations of Foreign Governments showing interest in SRP, along with Public Oil Companies and certain private players.
Privatization and disinvestment of railways
The jurisdiction of railways pans much beyond mere operation to areas as diverse as manufacturing of bogies to laying of railroads and employment. Unlike large firms having a uniform broad objective, the diversity and multiplicity of objectives (which are both social and economic) of Railways make privatization difficult. At least there cannot be a single entity willing to buy it entirely. Privatization would have to be marginal and proceed at a step by step basis.
Gauging by that parameter, privatization has already been under way. Design, finance, construction and maintenance including production activities have already been outsourced or privatised. Cleaning and washing of stations and coaches, on board cleaning in running trains and cleaning of engines in sheds, have also been outsourced. The Cabinet has approved disinvestment of IRCTC (Indian Railway Catering and Tourism Corporation), IRFC (Indian Railway Finance Corporation) and IRCON (Indian Railway Construction Company). In the Railways hospitals, doctors and paramedical workers have been appointed on contractual basis.
Even within SRP, there is a controversial clause that the states station area and the land around it will be given to private players on lease for a period of 45 years. A station facilitation manager (SFM), who will be the representative of the contractor, will manage the entire railway station and all its commercial activities except the core function of running the trains, reports Frontline.
Can Disinvestment enable modernization?
Certain aspects of disinvestment are desirable. It allows infusion of non-debt creating capital into the sector along with efficient management structure o the private sector. It also allows the Government to transform the railways from a mass-carrier to a strategic partner facilitating Indias growth story Private players are currently being roped in for long-term capital expenditure to enhance create dedicated freight corridors (exclusive routes for cargo) which would not only enhance carrying capacity but also, free up existing lines for passenger trains.
There is, however, certain nuances that must be appreciated. Foremost, privatization is not a panacea to cure the railways, and contrary to common perceptions, privatization is not equivalent to reforms. Excessive political intervention has undoubtedly weakened the railways, but providing functional autonomy to the Railway Board would yield better returns. Care must also be taken to ensure the security of work. Informalization has already reduced the number of employees in Grade D jobs from 7 lakhs to 1 lakh over the past two decades, despite overall employment witnessing a rise. Most importantly, it should not cease to exist at a low-cost travelling medium for the masses. Currently, an average passenger pays only 53% of the costs. Rationalization of passenger fares would help in the modernization of the sector, but should nonetheless be used as a pretext that would pinch the poor.
Featured Image Source: Johannes Plenio in Unsplash