A Case to reform Railways in India - Sept 2012
by Amit Bhushan
Category Financial Management


A Case to reform Railways in India
By : Amit Bhushan Date 23/09/2012
It is a long time since a major Political party wrested control of the Railways ministry. The ministry has been almost always under control on minority partners in murky coilition politics in India. The railways which lords over vast resource including land, infrastructure and with ability to present its own budget in parliament and therefore giving small coilition partners almost complete autonomy in implementation of its ideas and policies across almost all states of India (barring a few in North east) gained huge political mileage (and spoils) to who-so-ever was in control of the ministry. Its autonomous nature allowed the “Me’lord” run his dictat much more freely compared to other ministries/ministers which have to tussle with Finance for projects that they want to ‘secure’ to satisfy their contituency.
The governance of railways in India is also intersting. Rather that a creator and manager of logistics services for the nation to support movement of goods and people, the Railways has been viewed as a strategic tool of national integration. Although some attempts were made to ensure that the Railways are managed profitably, however it has always fallen short of expectations and due to dynamics of coilition politics, the concerned ministers have almost always got scot free. Even though the Railways sit on thousands of hectares of public land available to it at negligible value and availability of electricity at special contracted price, it still has stbbornly refused to make profits. Neither has it extended its network to meet demand in the Plains and pleatues of India. Its expansion in the hills is little and almost at the same level where the Britishers left it. This is even when the alternative to rail transport i.e. Road transportation being several nothes costlier.
Quite a few Railways projects could be some of the most profitable ones given the dynamics of the situation. However subsequent Railways ministers have used the ministry as a tool to meet they personal/political parties ambitions rather than doing anything for the betterment of sevices towards the people of the nation. One of the biggest reforms that could be undertaken by the current government would be to Corporatise Railways after possibly breaking down its services and expand their services to the masses. The ministry could retain governance and create a regulator and in the initial period, the ministry may retain 100% control over the PSUs so that restructuring could be easier. Later, it could unlock the wealth of the people in the sector by offering shares to the public. This would help the individual corporate raise loans free of government guarantees (possibly) and invest in expansion of services. The ministry can try expanding into states which are still not connected through Railways as one of its starategic goals (akin to USO structure of telecom ministry) and allow the PSUs expand services to the nation in Plains and Plateau.
Given that the government is looking to reforms, it should serious try to do something effective for the nation and for which Political resistance could be minimal and would have support of the Rating agencies for which it has recently shown concern. It has been engaged in areas which would only make limited impact that too in distant future and raised a lot of political dust. This may have clouded the previously burning issues of corruption and unlevel playing field in the country and allowed rating agencies to raise their ante because of detrioration of the investment climate in India. However, effective answer to rating agaencies would be to bringforth reforms that unlock national treasures such as Railways to global public to improve governance and perception around India rather than trying to dozz the agencies with politically challenging reforms which allow investors access to newer areas wth caveats that may not be acceptable to them.