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If Only Khullars Could Save Indian Railways

Omkar Goswami


For a 151 year-old all-India institution which represents the second largest in the world under a single management, the Indian Railways has been distinctly unlucky in its choice of political masters since 1980. There were, of course, odd exceptions such as Madhav Rao Scindia, George Fernandes and, at a pinch, maybe Nitish Kumar. But, I think most of us would agree that magnificent eminences such as A.B.A. Ghani Khan Chaudhury, Jaffar Sharief, Ram Vilas Paswan, Mamata Banerji, and now, Laloo Prasad Yadav are probably not what Indian Railways (IR) deserved.


Regular rail accidents — now occurring with increasing frequency — point to the safety problems of IR. While rail safety has become a serious issue, it is not the only misfortune faced by this great organisation. The travails of IR are far more serious. As the illustrious leader of Madhepura prepares for his first Railway Budget, let me share with you some of the problems that he ought to be aware of.


In a sentence: “The Indian Railways is hurtling towards financial and organisational bankruptcy.” This was not the case earlier. Until the second half of the 1990s, IR had been generating a net surplus. Thereafter, it has been posting increasing losses, although its peculiar accounting procedures hide this from all but the most discerning eyes. If the IR accounts were to be re-cast according to Indian-GAAP in terms of a ‘going concern’ entity, then its accumulated losses would be large enough to wipe out the book value of its net worth. In other words, Indian Railways would been a ‘sick’ BIFR company.


The reasons for the financial decline are many, and have all have to do with self-seeking political leadership coupled with a generally pliable Railway Board which, over time, found it more prudent to accede to operationally absurd and financially debilitating political demands than to categorically draw the line.


First, IR has to be the global master of cross-subsidising. In the name of serving the masses, our railway system has been heavily subsidising second class and suburban passenger traffic at the expense of freight. Some cross-subsidising may have done no economic harm and also contributed to some social and political good. However, the IR raised freight rates so much that it effectively killed the goose that laid the golden egg. In 1990-91, Indian Railways accounted for 57 per cent of the cement transported within India; today, it is 43 per cent. Similarly, the railways’ share of transporting petroleum and petro-products has dropped from 53 per cent to 37 per cent; and the share of iron and steel has plummeted from 72 per cent to 34 per cent. In keeping its poor passengers happy, IR has permanently lost long- and medium-haul bulk freight that ought to have been its natural comparative advantage.       


Second, there was an escalation of the number of un-remunerative projects — beginning in the 1980s, and accelerating in the 1990s. Several such examples lurk in the corridors of the Rail Bhavan. For instance, Ghani Khan Chaudhury making his constituency, Malda, a divisional headquarters, and Paswan doing likewise for his beloved Hajipur, created needlessly expensive duplication of costs. More seriously, the adoption of the uni-gauge project has involved large investments that have seriously harmed the finances of IR, without any obvious short- or medium-term returns. In several instances, investment in electrification has been excessive to the needs of traffic. Often, it has been a big political show, where the Rail Minister’s desire to claim that “I have electrified so many kilometres” has outweighed all economic rationale. Even worse has been the ministerial desires to invest in a vast number of new lines for nothing other than pure political grandstanding with their constituency. For Ghani Khan Chaudhuri, therefore, everything had to do with North Bengal in general, and Malda in particular; for Paswan it was Bihar with special reference to Hajipur; for Mamata-di it was Bengal; it was Bihar for Nitish; and you can bet your fodder that it will be Bihar for Laloo.


As if this were not all, the Fifth Pay Commission has delivered a body blow. Thanks to a massive increase in wages and salaries without corresponding growth in productivity, staff costs of IR account for around 50 per cent of the organisation’s gross traffic receipts. Today, the wage and pension liability stands at almost Rs.20,000 crore — which is more than double of what it was in 1996-97.


The pension situation is even more alarming. Since 1974,  there has been no actuarial assessment of the Railway Pension Fund, and it is grossly under-funded. That’s not all. In 1975, the IR had 0.06 pensioners for each serving employee; by 1981 this had risen to 0.17 in 1981; by 2000, it was 0.74. In other words, while the Railways staff strength is around 1.54 million, the number of pensioners is 1.13 million. By 2006-07, the estimated staffing in IR will be around 1.3 million, while the number of pensioners will have exceeded that figure. Not surprisingly, while the pension payout was 6.3 per cent of gross revenues in 1986, it is now almost 15 per cent. And, as the numbers suggest, unless something radical is done in the revenue and cost fronts, it will continue to increase over time.


Multiple objectives; self-seeking political leadership; cross-subsidisation; investments in un-remunerative projects, poor productivity; growing pension liabilities; the list can multiply. The upshot has been tragic: while new trains are being introduced each year, there is not enough funding for track safety. Leave aside investing in new safety equipment, thee Indian Railways finds it virtually impossible even to maintain and service its existing assets. The lines have got congested. Train speeds have come down drastically. Safety has been compromised. The quality of rolling stock is steadily deteriorating. This great Indian institution is bleeding to death.


Can Indian Railways be revived and put on a high growth path? Yes, provided all stakeholders bite the bullet to accomplish the turnaround. The Rakesh Mohan Committee explicitly charted such a path over a 15-year span. Nitish Kumar found it politically expedient to reject it.


I have no doubts that Indian Railways can be turned around. Unfortunately, I also have no doubts that the great helmsman from Magadh couldn’t care less. To him, as tomany of his predecessors, Indian Railways is nothing other than a gravy train.   


Published: Financial Express, June 2004


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