Railway reform imperative

Focus on more investment to enhance capacity should be a priority

The committee on the restructuring of Indian Railways, chaired by Bibek Debroy, submitted its final report last week. Predictably, it has already been subject to criticism from both sides of the spectrum. The railway establishment, from trade unions to the railway board, is objecting to the corporatisation-private entry thrust of the recommendations, apprehending that these will impact their respective interests. Outside observers have suggested that the final report is, in fact, a retreat from the more radical recommendations floated in the interim report. It would be a great pity if the substantial and practical recommendations in the report were to be held hostage by the fractious responses to it. As the report itself says, many previous reform efforts have been stonewalled by organisational resistance. Over the years, in the absence of any strategic focus, the railways have steadily deteriorated in terms of service quality, safety and financial performance, with perhaps a brief turn for the better on the last criterion. The country simply cannot afford another lost opportunity for change. It is now incumbent on the prime minister and the railway minister - who is seen by many as a genuine change agent - to prioritise the recommendations on the basis of impact and quick implementability and swing into action.

A key issue raised by the committee is the potential resource base. In order to encourage private sector investment, the entire accounting framework would have to be changed in order to show investors a balance sheet. Many experts believe that this is virtually impossible in a reasonable time frame. It would, thus, be better to focus on private investment into new activities, which are structured in entities with clear balance sheets. Core operations being run on the existing accounting system will have to remain that way. One important recommendation is for the government to simply write off accumulated liabilities, allowing the system to make investments in capacity enhancement and safety mechanisms. Another sticky issue, related to accounting methods, will be in the restructuring of non-core assets, like hospitals and so on, which the committee suggests. How are these to be valued? In the operational context, this problem will also be felt in separating the fixed infrastructure from the rolling stock. The primary role of the proposed regulator is to ensure open access to the railway tracks for private rake operators. Fair pricing would have to be based on cost. The idea of competitive entry is certainly worthwhile, but pricing will be a challenge.

Broadly speaking, the division of responsibilities between a strategic oversight group in the ministry, an operational board for the Indian Railways and a regulator that safeguards competition is the right way to go. This is a change that the government must begin implementing. The specific mandates of each of these entities need to be clearly drawn up. Accounting reforms and the pricing decisions that flow from them will necessarily be on the long-term agenda and should not come in the way of immediate action. Private entry into core freight operations, which is already permitted, and passenger transport, which would be a leap forward, must be accompanied by investments in safety mechanisms and monitoring. The bottom line is immediate action.