Rail Budget 2015: How to get the railways on track
Our new government is obviously keen to make rail transportation a significant part of the development and growth journey of India. As I see it, the journey needs to build on (i) consolidation of government led activities towards efficiency, (ii) viable growth through public private partnerships (PPPs) for greater customer orientation, and (iii) modernisation to achieve quantum leap in output.
Consolidation: The government has been speaking the right language for this, by emphasising, rather boldly, that no new projects will be taken up until the existing shelf of projects are completed in a prioritised manner. Investing in substantially complete or half finished projects would enable faster revenue generation, for relatively "lower" capital. There are many other domains that can be worked on. Standardisation of passenger train rakes can improve the average utilisation from 600 km/day to 900 km/day. Investments to streamline and avoid cross traffic movements at junctions and stations can increase average speeds and throughput to yield high returns. Improved signaling leading upto automatic train control can not only increase throughput, but also safety.
Growth through PPPs: Both the railway budget and the union budget mention PPPs liberally. The Railways, with a large asset base, has tremendous opportunity to bring in PPPs for improving customer service and efficiency. Automation of major freight loading and unloading points can not only increase goods' supply chain efficiency, but also reduce wagon turnaround times. Multi modal logistics parks can help aggregation and disaggregation of cargo between road and rail, bringing in a greater share of traffic from road to rail. Customised freight and passenger train services can be brought under the PPP umbrella for a start. The Railways have already moved along this for container movement, and other segments like automobiles and food grains. However, the framework has really not been PPP "friendly". Opportunities also exist in network investments for targeted markets like ports, mines, and heavy industry. These can be extended to markets like agriculture and in geographies where Railways are viewed as a catalyst for development through the "viability gap funding" mechanism, successfully used for road projects. The dedicated freight corridors (DFCs) are another huge opportunity for bringing in PPPs at the service end.
Modernisation: Higher speeds, larger throughput through revised standards, greater ride comfort, reduced emission and significantly improved levels of safety can be achieved through specific zero based projects and supporting R&D. The concept of the bullet train, and larger moving dimensions and longer trains as in the DFCs, are welcome steps in this direction. A lot more can be done through new generation rolling stock (freight and passenger), and advanced signaling. A significant focus on R&D, with a three to five per cent revenue spend, partnering with our high end technology institutions and innovation oriented manufacturers would be critical for sustained modernisation.
While the opportunities abound, there are fundamental constraints that need to be dealt with. Two of the most important would be infrastructure financing and organisational restructuring.
Financing: The financing of Railways has traditionally been (i) internal sources, (ii) extra budgetary support, and (iii) the bond market. The PPP source, which, apart from promoter and private equity, can attract debt financing and other long term funds including insurance and pension, needs to be actively sought. However, this will happen only if our first goal of attracting PPPs is managerial effectiveness and entrepreneurial energy. Foreign direct investment is another source, especially from cash rich growth saturated countries who would be in a position to provide funds at lower interest rates. The government has shown its intention in seeking this source by bringing in the concept even in a sector like defence. Another source which the government has opened up is public sector investing directly from their surpluses. If the Railways are focused in their approach, leveraging their traditional strength of project management, the funds ought to flow, since the rail sector is potentially a sunrise sector.
Organisational Restructuring: To actualise the sunrise nature of the rail sector, organisational restructuring is a must. This needs to happen at three levels: (i) separation of the policy (ministry), operational (corporate Indian Railway board, and other corporate boards including the special purpose vehicles of PPPs), and independent regulatory functions (safety, tariff, environmental, service levels) at the highest level, (ii) corporatising the Indian Railways, with the top level functionaries holding business oriented roles rather than functional roles as at present, and (iii) making the cadre based recruitment and promotion more flexible through merging of cadres at senior levels, open recruitments at mid level, and a gradual reduction in the government cadres to enable greater talent with appropriate customer oriented attitudes to come into this sector.
Finally, it behoves on all of us to answer the question whether, given the imperative need for significantly more rail based transportation in the country, the ownership should be vested only in a structurally outdated Indian Railways or multiple stakeholders who can leverage this technology for India's growth story.