Railways: Bus Driver’s Advice

I have been thinking about a problem which railways will face and thinking about writing on it since the end of Feb ‘2016 when the railway budget was presented to the parliament. However, for some reason or the other did not get down to typing this piece earlier and now without any further introduction here it is.

A study of the budget documents of Indian Railways (IR) shows that for the year 2016-17 Railways has projected earnings at about ₹ 1,80,000/- crores a year and the total working expenses of Railways at about ₹ 1,70,000/- crores. About 2/3 (Two third) of earnings amount (about ₹ 120 lakh crores) comes from freight traffic and balance ₹ 60 lakh crores comes from passengers traffic, other coaching earnings and sundry other earnings.

It is a matter of fact that about 80% of the freight traffic (about ₹ 95 lakh crores) moves on the golden quadrilateral – connecting Delhi, Mumbai, Chennai & Kolkata. Once the Dedicated Freight Corridor Corporation of India (DFCCIL) builds the Dedicated Freight Corridor (DFC), this 80% of IRs traffic will move on the DFC. Assuming that only 80% of this traffic will to DFCCIL, an earnings of about ₹ 80,000 crores (80% of 98,000 cr) will go from IR to DFCCIL and IR will be left with an earnings of only about ₹ 1,00,000/- crores. Consequent reduction of railway expenditure will be only about ₹16,000-₹20,000 crores (because direct cost of fuel accounts to only about 20%). Thus railways will be left with a net yearly shortfall (loss) of about ₹50,000/- crores.

One can argue about the above and rework these figures and say that the net shortfall may be only about ₹40,000/- crores or so. However, the fact that IR will face a huge financial crisis cannot be denied. How will railway generate additional income of this order in the next three-four years is not very clear but it is clear that the impact of Pay Commission recommendations and repayment of interest and principal amount for the loans taken earlier and that IR is going to take from LIC etc. will also have to be factored in and all these will make this situation worse. It is not clear what efforts are being made or will be made to tackle this situation.

When I mentioned the above calculations to a very well recognized expert of transport sector who has worked extensively on railways, he quite agreed with me on this crisis and said that it was a clear writing on the wall. I asked him how Senior Management of IR will manage the system in such a scenario. He said, “Are they managing it today?” He later explained that the job of top management was not just taking care of the day-to-day affairs of the organization but it is to ensure that happenings in the environment are taken into account and organization prospers in the long run. He was of the view that the Railway Administration specialized only in crisis management and even in this they tackled only the immediate ones and provided ‘Band-Aids’ – temporary solutions.

Listening to this expert and later discussing it with different groups I was reminded of an incident. Once I was travelling in a bus on difficult hilly road in Uttrakhand. At most places, particularly at sharp turns, the road was rather narrow and on one side there was mountain and other side a deep valley. I was sitting on the front seat across the driver and would get scared each time we came to a sharp turn. At the next stop, while having tea, I asked driver whether he ever got scared while negotiating such roads. The driver, sipping his tea said, “aisee jagah par mai apanee aankhein band kar leta hoon. fir dar nahin lagata. aap bhee kar liya karo” (at such points I close my eyes then I do not feel scared and you too should do the same.).

Having worked in railways for a long time I find it difficult to follow driver’s advice and close my eyes.

Railway Budget 2016-17

The Budget Speech of Hon’ble Minister of Railways (MR) delivered in the Parliament on 25-02-2016 is very different from the speeches made by earlier MRs.  In fact it is even different from the speech he made last year.  He has set about transforming Railways with three core objectives – quality of customer experience, employment generation and economic growth. He has a clear vision of a system free from capacity constraints, a system that is efficient and predictable, a system that is sparkling and pristine, where people feel at ease and ease of doing business pervades entire Railway ecosystem. He faces enormous challenges both revenue side, because of “tepid” economic growth in the core sector of economy due to international slow down and on the cost side due to likely increase in cost on account of seventh pay commission recommendations. However, he has set about charting a new course and is depending on 3Rs for it – “Reorganise, Restructure and Rejuvenate”. The three pillars of his strategy are – a) New sources of revenue; b) setting new standards to improve efficiency; and c) new way to resolve issues by “Co-operation, Collaboration Creativity and Communication ”.

The performance of the last year had not been very good on Revenue front.  However, the damage on this account was controlled by a reduction of expenditure by Rs. 8720 crores.  He hopes to increase revenue by 10.10 % next year. He has set himself a very tough target by increasing in the capital plan next year from existing Rs. 48,100 crores to Rs. 1.21 Lakh crore.  He is confident that he would be able to gear up the organization to increase the level of work through developing a new framework of public private partnership (PPP) and forming joint venture with different State Governments.

Some of the areas covered by him under the new beginning are, a) structural interventional in terms of re-organising the Railway Board and further empowering the Chairman.  New areas where the Railway Board is expected to focus on are Non-fare Revenues, Speed enhancement, Motive Power and Information Technology. The PPP Cell would also work to improve ease of doing business with IR. b). He is setting up new Railway Planning and Investment Organization. Though, the contours of this has not been discussed by him, it is expected to take care of medium and long term Corporate Plans. New National Rail Plan (NRP – 2030) is to be developed with all stake holders including State Governments, Public Representatives etc., c) creating a holding company for all the PSUs of IR.  IR has about a dozen PSUs and setting up of this holding company is essential so that they work in sync and build on strength of each other. d) Investing in future: He has proposed to take out ‘Research’ from the RDSO. It is a welcome step as it will free RDSO to concentrate on Standardization and Inspection work etc., for research he will be setting up SRESTHA wherein specially recruited scientists would work along with few Railway experts on research projects. He is going to set up Foreign Rail Technology Cooperation Scheme (FRTCS) which will institutionalize and take forward the work in key technology areas such as High Speed, Heavy Haul etc. e) Data Analytics and f) Setting up of Innovation Committee headed by Shri Ratan Tata and comprising of representatives of reputed investors and others.

He is also setting up 7 mission mode projects and each will have an “annual outcome based performance targets” and the Mission Directors will report to the Chairman, Railway Board.  The seven missions are: a) Increase in axle-load of wagons to 25 tons from the existing 15 tons. b) Zero accidents through removing unmanned level crossings and by implementing Train Collision Avoiding System (TCAS). c) Procurement and consumption efficiency. d) Doubling average speed of freight and passenger trains. e) Hundred sidings in next two years. f) Beyond book keeping: right accounting to determine right costing which in turn will result in right price and right outcomes. g) Capacity utilization – expediting work on Dedicated Freight Corridor.

It is worth mentioning that the last of the above referred mission mode project may lead to a serious financial crisis in the Railways. As is well known but 80% of freight traffic moves on the ‘Golden Quadrilateral’ (between Delhi, Mumbai, Chennai and Kolkata). Once the Dedicated Freight Corridors comes into existence this traffic will go away from Railways to the Dedicated Freight Corridor Corporation Ltd. (DFCCIL).  That is IR may loose 80% of the existing 1186.25 Million Tonne (MT) of traffic. If this happens, Railways will find themselves in a serious financial crisis unless an equal amount of traffic is generated to move on Indian Railways which would then be providing last mile connectivity beyond the ‘Golden Quadrilateral’. However, I would not go on to say that the IR may go into ’Debt Trap’ or will be in ‘red’. Perhaps they may find alternate sources but it is a serious concern and IR will have to seriously look for options particularly because they are going to borrow about Rs. 1.5 lakh cr from LIC and other institutions for investing in IR projects. 

It may be noted that under his leadership work has really gone at a fast pace and they have achieved considerable progress in laying new lines and completing electrification of existing lines.

Perhaps, it is for the first time in the history of Railways that a Minister has talked about external ‘third party audit’ not only of ‘feedback from passengers’ but also about ‘catering service’ and ‘IT Security’. Earlier the passengers who wanted to go till operational halts had to purchase ticket till the next commercial halt/station. Now they will save money as they can buy the tickets till the operational halt. This is a peculiar case where passengers wanting to go till Gangapur City from Mumbai on Mumbai-Delhi Rajdhani had to purchase tickets till Delhi as Gangapur City was only an operational halt. Similarly passenger on other routes will save money.

It is a happy note that IR has planned to take ‘Digital India’ efforts to new heights.  One finds a number of areas where special emphasis has been made on implementing proven IT Technology to monitor work being done on projects through ‘TV cameras on Drones’, ‘providing information and messages to passengers in smart coaches’ and ‘data analytics’. Perhaps, it is the first time that Railways workshops will utilize their spare capacity for producing goods for domestic and international markets. The changes proposed to be made in ‘procurement procedure’ for both ‘goods’ and ‘EPC contracts’ for work will go a long way and bring in transparency, efficiency and public confidence. He is contributing a great deal towards Swachchh Bharat also by promising to install 30,000 bio-toilets in the next year as against 17,000 installed this year.

He has devoted considerable part of his speech on efforts made and projects to be implemented to provide comfort amenities and service to passengers. It is also a happy change that Railway is going to revamp the ring railway system to provide relief to suburban passengers in Delhi and that they will work on Bengaluru Metro. In earlier regimes Railways did not have very close collaboration with the State Governments but in the Budget Speech MR has laid emphasis on this.

If one has to list three ‘game changers’ in the Budget I would list the MRs resolve and commitment to start “time-tabled freight container, parcel and special commodity trains on a pilot basis” and developing and providing “customer commitment charter indicating service level commitments of IR to passengers and freight customers”. These have been requested and demanded by passenger and freight customers for a long time but IR repeatedly turned ‘Nelson’s eye’ to them. The third one is rejuvenating the Internal Audit System and expanding its scope to include audit of train operations too.

It is really heartening to see a conscientious Minister who has been forthright and transparent enough to list out 139 promises that he had made last year in the Budget Speech and reporting how much he achieved against each item – listing item by item in transparent and fair manner.