Railways: Not as terrible as painted
By K L Thapar
Business Standard | February 25, 2005
http://www.business-standard.com/common/storypage.php?storyflag=y&leftnm
=lmnu5&leftindx=5&lselect=2&chklogin=N&autono=181728
It has become customary in recent times to criticise the Indian
railways, especially during the Budget season. Few people realise that
the railways remain socially the most efficient way of meeting the
growing needs of the economy and the people.
The strain caused by them on the environment is the least and
weight-for-weight, the railway system provides the most efficient mode
of surface transport. That, indeed, is why the world over there is a
gradual resurgence of the railways.
But this re-emergence has been made possible by huge rounds of
investment. To go no further than China, between 1992 and 2002, China
had invested a massive $85 billion in its railway system.
In the same period, India invested only a little over $17 billion. Not
just this. The bulk of Chinese investment went into the creation of
fresh capacity. Sadly, this was not the case in India.
There is no gainsaying that the railways need to reinvent themselves in
many areas. But there is also much that could be commended. Indeed, I
would say that given the various constraints under which the railways
have to operate, their performance, especially in the recent years, has
been hugely impressive.
Since 2002, they have moved, on average, 34 million tonnes of additional
freight traffic each year. This would amount to a cumulative increase of
103 million tonnes in just three years ending 2005.
Compare this with an average of 6-7 million tonnes per year over the
previous 50 years, or an average of 17 million tonnes during the decade
ending 2002 and you get an idea of how well the railways are performing.
This suggests that the core strengths of the railways in operation and
management are still very strong. It also shows that the management has
been responsive to potentials of technological upscaling.
Otherwise, it would not have been possible to achieve these creditable
productivity and output gains. Thanks to the quiet modernisation that
has been under way, the railways are confident that, within three years,
they will be able to run freight trains at 100 kmph, up from the 40-50
kmph now.
In the past, the railways gained enormously from the financial and
technical inputs provided by multilateral agencies. Sadly, over the
years, they chose to give up on the railways in the belief that the
reform in the system is not possible.
This is a mistaken judgment. Reforms may be painfully slow. But what is
important is that the process is on and gaining momentum. To strengthen
this process, the multilateral agencies need to engage with the system
more vigorously.
The railways are no longer strangers to the process of corporatisation,
disinvestment or the setting up of joint ventures with strategic
partners.
A special purpose vehicle (SPV)-Rail Vikas Nigam Ltd (RVNL)-has been
incorporated under the Companies Act to undertake works through
public-private partnership.
This format was earlier adopted for the successful completion of
providing a rail link to the Pipavav Port. Another SPV has been created
with the Karnataka government for gauge conversion projects in the
state.
Setting up the Container Corporation is a success story of hiving off a
core activity of the railways. The spun-off unit is making sizeable
profits and even contributing to the railways' revenues.
This measure inspires confidence that the railways' production units, if
corporatised, would also turn out to be equally successful; more so,
because these units are engaged in a non-core but well-defined activity.
The railways have also taken a major step in enhancing regional
cooperation by offering to train railway personnel from BIMST-EC
countries-free of cost.
This measure has been taken in recognition of the fact that the smaller
railway systems do not have the necessary wherewithal to support
training institutions in all disciplines.
The support given by the railways will further strengthen our relations
with the countries in South-East Asia.
All human endeavour involves choices and nowhere is this more true than
in the transport sector. Despite the comparative advantage of the
railways in terms of social costs, its share has been declining over the
years.
The reasons for this decline can be broadly categorised into pricing
policies and non-pricing attributes related to surface modes of
transport.
In the case of the railways, the pricing policy of subsidising the
passenger segment from freight operations has been carried to an
unsustainable extreme.
The skewed pricing policy has made freight rates absurdly high; indeed,
among the highest in the world. A comparison with the Chinese railways,
which have an equally large network and equally large economy to serve,
brings out interesting facts.
The freight tariffs on the Indian railways are 60 per cent higher than
in China. In the case of passenger traffic, the position is reversed.
The average passenger fare per kilometre in India is less than half that
in China.
This situation, if not corrected, would continue to erode the
competitive strength of the Indian railways. At the same time, it would
be a drag on the country's commerce.
Unfortunately, the political economy of the country often poses problems
in translating any optimal package of policies into practice. It is in
this context that an independent tariff regulator has become a
necessity.
(The author heads the Asian Institute of Transport Development, New
Delhi)
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