Trade unions prepare for a struggle as the Central government-appointed Rakesh Mohan Committee recommends far-reaching changes in the structure of the Indian Railways.
THE prescription of privatisation as a medicine for all ailments of the publicly-owned sphere of the economy has reached the Indian Railways. The interim summary report of the government-appointed Rakesh Mohan Committee has advocated far reaching changes in the structure of the Railways, one of the biggest rail networks in the world and, with a workforce of more than 15 million people, the biggest employer in India. Although the Committee submitted its report to the Railway Ministry in February, attention is now focussed on the Committee's final report, due shortly, which is expected to provoke resistance from the workforce.
Suggestions for liberal reforms, have a way of surfacing in times of a crisis. Indeed, a "crisis" is often a necessary condition for projecting liberal economic reforms. The basis for the Rakesh Mohan Committee's suggestions hinges on its perception of an "impending financial crisis". Deviating from the task set for it by the government, it has taken great pains to project the government's fiscal problems. The laboured reasoning is an attempt to explain that the government can no longer perform its main role as an investor by virtue of the fact that it owns and operates the vast rail network.
The privatisation of rail networks, infrastructure and services has been a controversial issue throughout the world. For instance, in the UK, serious objections were raised against the privatisation of British Rail in the 1990s. Moreover, Railtrack, the private infrastructure company, was recently indicted by the Cullen Committee which inquired into the train accident at Paddington in 1999 in which 31 people died.
Treading carefully, the Rakesh Mohan Committee advocates "commercialisation", rather than for outright privatisation, of the Indian Railways in a process spread over the next seven to eight years. Rail finances, the Committee argues, are precarious because investments in the Railways have not resulted in commensurate revenue growth. It explains that the increasing recourse to market borrowings to fund investments has been accompanied by a "saturation" of freight traffic, especially on the Golden Quadrilateral linking the four Indian metros. Rising "employee costs, poor productivity and declining budgetary support have compounded the problem", says the Committee. The Committee argues that this growing mismatch between revenues and costs has prevented the Railways from providing funds for even essential functions such as track repair and maintenance. A result of the poor state of finances is that the Railways' unpaid dividend to the Union government has accumulated to nearly Rs.2,500 crores.
For years, critics of successive Railway Ministers have clamoured for an increase in allocation for maintenance and renewal works, particularly because they involve passenger safety. Referring to the June 22 train accident in Kerala (see separate story), R.G. Pillai, joint general secretary of the Dakshin Railway Employees' Union (DREU) in Shoranur, told Frontline that his union had held a seminar in Kannur on June 19 and passed a resolution demanding track renewal and doubling. He said that the DREU had complained on several occasions about the poor condition of the tracks. He said that the density of traffic in the section had increased significantly after the completion of the Konkan Railway line. There was also insufficient monitoring of tracks because of shortage of gangmen.
As a result of prolonged neglect, arrears of track renewal have increased from 3,548 km to 11,211 km in the past ten years. In contrast, Project Uni-gauge, a pet project of former Railway Minister, C.K. Jaffer Sharief, received sustained funding. Critics have for long maintained that such a lopsided arrangement of priorities led to the allocation of scarce and costly funds for the Project at the cost of more vital and immediate needs of the Railways.
The Committee's key postulate is that the "efficiency of investment" is low in situations where there is "little connection between cost of funds and returns on investment." Given the state of the finances of the government and the Railways, efficiency is the key factor which will determine the health of the Indian Railways.
The Committee's prescriptions flow from this point. Corporatisation, a major recommendation, is aimed at ensuring an 'arm's length' between the owner (the government) and the functional entity (the Railways). The Railways' functioning as a government department has affected its commercial performance, making it take on more than it can possibly chew. This leads the Committee to suggest a division of core and non-core activities. Among the non-core activities are the Railways' own production, manufacturing and repair centres, catering services, and educational, medical and other welfare facilities for its workforce.
The Rakesh Mohan Committee's prescriptions are similar to those advocated and implemented in the controversial restructuring of the power and telecom sectors. It suggests the formation of the Indian Railway Regulatory Authority, similar to the Telecom Regulatory Authority of India (TRAI). The Authority will not only play the role of a "neutral" umpire in a field which will be opened up for new private players, but will also ensure the 'arm's length' that is suggested by the Committee. The Committee advocates sweeping legislative changes to prepare the ground for it and to reflect the separation of the commercial and social objectives of the Railways. Such changes are envisaged within a year of the restructuring exercise. Although the Committee does not actually suggest an abridgement of parliamentary control over the Railways, it goes without saying that such controls would be incompatible in a situation in which commercial considerations hold full sway over operations. Moreover, the space for such control would be restricted as the Railways itself is shrinking its scale of operations in a restructured environment. The annual presentation of the Union Railway Budget in Parliament would no longer be necessary if the suggested reforms are implemented.
In the first three years, the Committee would also like to start the restructuring of non-core activities and to revamp the Railway Board to reflect the organisation's status as a commercial entity. In five years, the Committee envisages the introduction of competition in the sector by allowing the large-scale entry of private entities in railway operations. "Ten years from now," observes the Committee, "there will be multiple owners, multiple funders, multiple customers and multiple managers. The governance of the many railway-related business in India needs to be redesigned in much the same way that airlines, telecommunications and utilities are managed and regulated."
The restructuring exercise would involve huge investments. Even in a "low growth scenario" the Committee envisages investments in the Indian Railways to the tune of nearly Rs.130,000 crores between 2001 and 2016. The unions say that the familiar tune of government-does-not-have-the money implies that the funds would have to come from multilateral funding agencies, possibly the World Bank. The government's commitment to adhere to a restructuring schedule would be necessary for the success of the programme. Indeed, the Committee is candid enough to observe that the multilateral and external financing routes offer advantages because it binds the Union government and the Indian Railways to a structured reform programme. The Committee says: "The primary benefit of conditionality-linked loan and preference capital programme from the government is that it provides a means by which a reform-minded government can publicly commit policy measures and send a signal that the reform programme is credible." The Committee says that conditionalities "guard against the possibility of a reversal" of the programme and "reduce market uncertainties".
THE trade unions have been critical of the Committee's report. They argue that the prescriptions will lead to higher passenger fares (the Rakesh Mohan Committee calls for second class passenger fares to be increased at an annual rate of 8 per cent in the next few years). J.P. Chaubey, general secretary of the All India Railwaymen's Federation, told Frontline that much of the Railways' losses occurs because there is no transparent method by which the government compensates the Railways for the services it renders to the state. For instance, referring to the operational losses that the Railways incurs on the North Frontier and North Eastern Railways, he points out that these lines are primarily used for the movement of men and materials of the armed forces.
R. Elangovan, a joint general secretary of the DREU, dismisses the oft-repeated claim of the Railways management that freight revenue subsidises passenger fares. He says that no "transparent studies of haulage costs in the Indian Railways are available to substantiate this claim". Elangovan said that nearly 50 per cent of goods traffic (in terms of tonnage) in the Indian Railways is accounted for by the movement of coal, mainly to the thermal power stations largely owned by the government. He says that because of government ownership, the Railways is often forced to deploy scarce resources for other government agencies without this being reflected in the Railways' accounts.
Elangovan is also critical of the Rakesh Mohan Committee's suggestion that second class passenger fares be hiked. He claimed that the fare structure is "already biased against" such passengers. Elangovan says that, contrary to popular perception, unreserved compartments are a major source of revenue for the railways because they often enjoy an occupancy rate of 500 per cent, a euphemism for overcrowded compartments without adequate amenities. He argues that, if seen in terms of costs and benefits for the Railways, the revenue from such rolling stock is greater than those that it earns from upper class services.
The Committee's recommendation that the Railways' production centres be hived off has also been greeted by protests by railway workers. The six major facilities are the Integral Coach Factory and the Coach factory at Kapurthala, the Chittaranjan Locomotive Works in West Bengal which manufactures electric locomotives, the Diesel Locomotive Works in Varanasi, the Wheel and Axle Plant near Bangalore and the Diesel Component Works in Patiala. Over the years these units performed a major role of import substitution. Elangovan said that the problem-solving abilities of these units has stood the Railways in good stead all these years. Referring to the controversial import of 6,000 horsepower locomotives from the multinational ABB in the 1990s, Elangovan said that while each ABB locomotive cost Rs.42 crores, the Chittaranjan Locomotive Works now manufactures similar indigenously-designed engines for Rs.8 crores apiece. He fears that the hiving off of these units would have serious cost implications for the Indian Railways.
In fact the Prakash Tandon Committee, appointed by the Central government in 1993, recommended that these units be hived off. However, a task force headed by Prakash Narayan, a former Chairman of the Railway Board, appointed by the government to work out the modalities for their separation from the Railways as independent "profit centres", rejected the proposal. It said that since production activity in these units was aimed at supplying the Railways for its own use, the output did not attract excise and sales tax. It would at the very least offer a 20 per cent price advantage when compared to a situation in which the Railways would have to procure from an external supplier.
Chaubey alleges that although these production units are internationally competitive, the Railway Board's bureaucratic ways are a hindrance in allowing them to bid for international projects.
Although the trade unions have registered their protest against the Rakesh Mohan Committee's recommendations, they are awaiting the submission of the final report. They have already indicated that they would join other Central trade unions in protesting against what they see as the effects of economic reforms on the Railways.
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