R Sivadasan: Need for change in railways' business model

The first merged Budget of the government has given important directional changes for the Ministry of Railways (MoR). It is one of the best Railway Budgets in recent times, given its focus on safety. Performance-wise, the commitment to improve Operating Ratio is welcome. And this is borne out by the Revised Estimates, that indicate an Operating Ratio of 94.9 per cent for 2016-17, despite being a difficult year for the Chairman A K Mittal and his team. The directional changes are clear. 

Functional autonomy has been bestowed on Railways. This lays the onus of raising additional resources, beyond GBS on Railways. 

The Railways’ Investment Outlay for 2017-18 is set as Rs 1,31,000 crore, Rs 55,000 crore comes as GBS.  Railways Finances would have to be stepped up, to match the need for the balance Rs 76,000 cr. (61 per cent).  Borrowings will certainly be a bulk share. Some resources would be freed from not having to pay dividend to the ministry of finance. However, strategic changes in the very business model of  Railways will be required.  

While doing so, MoR must now pay more heed to certain key mentions in the FM’s speech. Emphasis on Sustainable Debt is one. To the extent that IR’s main Revenues are from freight and passenger tariffs, all sources of resource mobilization (Surplus Resources from own Revenues (EBIT), PPP and Borrowings)  for matching investment, must arise from higher top line Revenues. Thus the budget theme for strengthening the Capital and Development Investment can be successful only with concomitant changes in how Railways conducts its businesses. 

The current infrastructure of delivering passenger services is designed as a low -cost, low-on technology and low-on passenger satisfaction model. The excuse that people are not able to afford more is passé. The sterling example is Delhi Metro. Mr Shreedharan, the finest engineer and visionary administrator Indian Railway has ever produced, brought in a world class product for a mass — use public transport and charged appropriately. A simple fare of roughly Rs 1 per km. People gladly paid because they travelled in air conditioned coaches with international standard commuter comforts. The same is happening in other metros, particularly Mumbai. The 11 km new Metro has become so popular with the people that they want a similar quality service to expand covering 146 km. 

IR must consider offering similar quality services for which commuters will not mind paying the same fares. This requires a different passenger business model with investments in BG Metro Rail Train sets which might still be available in India from BEML, Bangalore. Endowed with a massive ridership base offering 151 billion passenger kms, the concept of unified fares, at par with Metro Rail, can generate a substantial surplus for introducing modern train sets in their modernised suburban passenger business competing with Metro Rails. There are officers with brilliant ideas serving in top levels of Zonal Railways who have acquired the capabilities and field experience for successfully redesigning IR’s stale business model. The Rail Shivir threw up quite a few quality suggestions that need to be taken forward.The Ministry needs to seriously introspect and bring in fresh talent. 

On the same line, track and rolling stock maintenance practices require a critical relook. Currently, it is extremely labour intensive and has a highly frequent recurring maintenance schedule . The need is for investing in more sophisticated equipments for track maintenance and rolling stock.

The remaining focus on solar plants, level crossing elimination, cleanliness initiatives and so on, are oft repeated in previous Budgets. I have no comments to offer on these.
 

The writer is former Financial Commissioner (Railways) and ex officio Secretary to Government of India