Every Indian seems to have one impossibly romantic railway memory, and mine is of a journey from Kalka to Simla as a five year old when I feasted for the first time on the snow tipped crests of the Himalayas, and I later recounted it in “A Fine Family”. But these memories are rapidly dying, as are the railways. Today, the Indian Railways are in financial crisis, and if something drastic is not done, they will wither away like the state in Bihar. The railways are the Indian government in miniature--inefficient, corrupt, hopelessly over-manned, utterly politicised, with shoddy, callous service. They weave the nation together, as they carry 4.5 billion passengers (or 4.5 Indias) a year. They have made the poorest Indian mobile--for fifty rupees one can travel 200 kilometres. They are cheaper than anywhere in the world because extortionate freight prices subsidise passenger fares. Hence, nobody dreams of transporting goods by rail, not only because of high tariffs but also constant delays. Even coal, petrol and diesel are inefficiently transported by road. To become a modern, efficient institution the railways have to shed urgently 500,000 overpaid and under worked employees, who demoralise the ones who do work. There are three ways to do this: one, don't replace the people who retire; but this will take ten years and by then the railways will be dead. Second, retire two out of four persons compulsorily at age 55, retaining only the outstanding ones; this too is slow, but it will help create a climate of excellence. The third way is to offer surplus employees the generous voluntary retirement scheme just announced by the government, but implement it like the best companies--get rid of the deadwood and retain the good people. To succeed they will have to employ all the three ways. To cut their losses the railways will have to also shed non-railway activities. They have to stop manufacturing, running hotels, hospitals, schools, printing presses, cargo terminals, parcel offices, and a host of activities that are best performed by experts. The factories making locos and coaches should be spun off as joint ventures to technology suppliers so as to bring in capital and the latest technology. The French Railways (SNCF) did this successfully. Not only will out-sourcing save money, it will improve their train services. Managers around the world have learned that a good organisation focuses only on its core activity and does it brilliantly. In order to survive the railways have to lower bulk freight rates and regain market share lost to trucks. It is scandalous that it costs more to send goods from Delhi to Mumbai than from Mumbai to London. Because of uncompetitive freight rates thousands of trucks bring coal from Bihar to Punjab. Indian steel makers have become price competitive internationally, but they cannot compete domestically because of high freight charges to their customers. Freight costs can no longer absorb the cost of excess labour, and if labour is rationalised, studies show that freight rates could be halved and the railways would still make a profit on freight. But to regain freight primacy they will need new container terminals with new operators, to raise the speed of freight trains, improve communications and signalling, and link its processes through information technology. Most importantly, they have to change their monopolistic 'take it or leave it' attitude to the customer. The threat of early retirement will help here. Finally, the most important way to save the railways is to distance them from the government. Politicians have played havoc on them. The Rakesh Mohan Committee studied practices around the world and discovered that the best railways have achieved autonomy from their governments by becoming independent companies, governed by an autonomous regulator, who sets tariffs in a transparent manner and who might have more guts than politicians to raise second class fares. But the railway board opposes corporatisation because it will bring their accounts into the public and enforce accountability. It might not reduce government interference either and they could end up as another fourth rate public sector undertaking--and they are at least third rate today! But corporatisation does offer the hope of bringing in an outstanding CEO, rather than the mediocrities of today's seniority system. Moreover, you can build safeguards to guarantee commercial autonomy into the contract between the government and the railways at the time of corporatising. This may not be enough, but if the status quo remains then a once great institution will just wither away, and just at the moment when our vibrant, growing economy needs it the most. Railways have to be saved from their own leadership. Hence, the radical and urgent reform of this institution should not be entrusted to the railways, as we have learned from telecom reform.
Mar 25th 2002