railways

Massive investment through innovative strategy can reduce logistic cost and cut oil import. Both Inflation and trade deficit shall reduce. It could be a game changer for economy.

R P Gupta CMD, Shiva Cement, Odisha Author, Turn Around IndiaMr. R P Gupta, CMD of Shiva Cement, Odisha, author of ‘Turn Around India’ shares his views with Steel 360 about improvisation in economy of India by using innovative techniques in Indian Railways.

In the past two decades, we have succeeded in mobilizing investments in Power, Civil Aviation & Telecommunication and could also bring huge changes. But unfortunately, Railways has remained investment hungry from the inception. It has always been the favourite political tool to garner votes by the successive governments. In Railways, focus has been limited on employment, cheap passenger fare and routing of trains to favourite destinations instead of meeting economic needs of the country.

As a result of which, the burden of goods traffic is gradually shifting to road transport which is not cost efficient rather a guzzler of a precious imported energy. Right choice is to strengthen railway infrastructure, augment capacity, improve efficiency and remove cross subsidy. And thereafter, road transport must be used for short distance traffic only. Inadequate capacity in the Indian Railways is also causing intermittent shortage of goods at the consumer’s end. Cross subsidy borne by goods traffic is adding up to the delivered cost of goods. Overall result of this is that we are converting India in to a high cost economy centre and inviting inflation along with   losing competitive edge in the global trade market.

Normally, composite transport services in any economy grow at least at 1.25 times of GDP growth but Indian Railways is not keeping pace with the economy growth of the country. It has targeted only 4% growth in goods traffic in its current budget for FY 14.  As a result, there is continuous transfer of traffic burden to road. We must therefore enhance railway capacity to reverse such scenario. Besides capacity building, we must also improve cost-efficiency, passenger amenities and provide adequate safety measures. We should therefore allocate a minimum INR 12 trillion in the 12th five year plan as against INR 2.61 trillion during the eleventh plan. Such massive increase needs an innovative strategy such as to hive-off non-core activities and then to split entire Railways operations into six corporates. Corporate-A & B shall own rolling stocks (wagons/trains) for goods & passenger traffic respectively. Corporate-C shall own all engines (power) and workshop for repairs & maintenance. Corporate-D shall own railway track and bridges. Corporate-E shall own railway stations for handling goods and passengers.  Manufacturing plants for rail coaches and engines shall be owned by Corporate – F.  Corporate – A & B will be paying user charges to C, D & E for availing their services for which a regulator may be appointed. Such regulator shall also fix the tariff for goods and passengers till a competition is crafted with entry of private operators. Cross subsidy borne by goods traffic must be phased out in next 2-3 years which is currently loaded back on the consumers through round tripping. This restructured model is more or less identical with Aviation industry and well proven.

All the assets of Railways including land and buildings may be suitably distributed among these corporates as per fair market value instead of book value through a special enactment. Such investment value may be treated as a contribution from government as debt and equity in these corporates. Of course, the debt should be for long term at low cost. Thereafter, all these corporates may be listed on stock exchange either by raising fresh equity or through disinvestment route. This will ensure accountability towards public shareholders. Each corporate can raise funds for meeting its investment needs like any other PSU.

In addition to such restructuring, private operators may be invited in each activity to compete with these PSUs which shall bring additional investment and create competition. However, the traffic control must remain with a separate government body for coordination. Few railway stations may be handed over to private operators for developing marketing centres besides passenger amenities. It will unlock value of costly land and shall generate revenue for both developers and government. Similarly, few goods handling stations may also be handed over for developing modern handling facilities and improving operational efficiency. Surplus land & buildings and obsolete equipment & stores should be monetised for raising resources.

All such activities will certainly make it feasible to augment such ambitious investment as proposed. The competition among private and PSU corporate shall improve cost efficiency besides capacity building. We have already seen benefits of such privatization and competition in Aviation and Telecommunication sector. It is high time for the government to adopt similar strategy for Railways instead of retaining this for political gains. Its impact shall be quite visible on the overall economic growth, inflation and trade deficit front. A fast and comfortable rail travel shall partially replace air traffic and promote tourism as well. This will indeed generate lot of goodwill for government since Railways is the most visible infrastructure. Rather, it will be a right blend of development and electoral politics.