Policy Watch: Is Indian Railways on the right track?

POLICY WATCH
Is Indian Railways on the right track?

The railways is rolling out the red carpet for the private sector. But are the real issues being addressed?

By Seetha

Iron-horse meets India Inc. A cash-strapped Indian Railways is wooing the private sector arduously, with an eye on the megabucks. Rolling out of Delhi's Rail Bhavan are ambitious plans to build a broadband backbone, develop tourist resorts and plantations on railway land, and get private firms to construct railway lines.

Private sector partnership is being touted as the wonder drug to cure Indian Railways of its myriad ills. The world's second-largest railway system, which is losing marketshare (both passenger and freight) to roads, is saddled with poor infrastructure and unviable routes and doesn't have the resources to increase capacity on busy routes. Its immediate needs: Rs 20,000 crore for new projects, Rs 9,000 crore for gauge conversion, and Rs 15,000 crore for track renewals and replacements.

Unfortunately, its coffers are empty. Railway Fund balances have plummeted from a comfortable Rs 3,565 crore in 1997-98 to a paltry Rs 253 crore in 1999-2000, and are expected to further drop to Rs 180 crore in 2000-2001. Budgetary support from the Government Of India (GOI) has declined from 75 per cent of the total Railway Plan in 1974 to 23 per cent in 1999-2000, forcing the Railways to turn to costly market finance. Market borrowings stood at Rs 3,000 crore in 1999-2000 and lease or interest charges amounted to Rs 2,615 crore. Sums up Y.P. Anand, 65, former chairman of the Railway Board: ''The Railways is bankrupt. There is no other way to describe it.''

The Railways has little scope to cut expenditure or increase revenues. New projects are sanctioned for political, rather than economic, reasons. Rues Railway Board Chairman V.K. Agarwal, 59: ''We say financially not viable, they say socially desirable, and the projects are sanctioned.'' Drastic downsizing is out. So is a revenue windfall, with Union Railway Minister Mamata Bannerjee adamant about not increasing passenger fares. Clearly, other sources have to be found.

Tapping the private sector is the most obvious answer. Actually, the Railways has been chugging along the privatisation track since the mid-1990s. Private firms were allowed to operate luxury trains, maintain suburban stations in Mumbai, handle catering, own rolling stock under the 'Own Your Wagon' scheme, and to do gauge conversions under the Build-Operate-Lease-Transfer (bolt) scheme. But the move didn't pick up speed. Now, empty coffers are forcing the Railways to stoke the engines. Says Mamata Bannerjee, 45: ''We are going to run like the Rajdhani.''

The telecom push

The most ambitious of Bannerjee's projects is a Rs 2,000-crore broadband telecom and multimedia network. The Railways plans to use its right of way over 63,000 km to lay optic fibre cables along railway tracks. These lines will then be leased out to internet service providers, companies, and media houses for transmitting data and multimedia content. Says Additional Member (Telecom) S.A.A. Zaidi, 59: ''We'll provide connectivity of international standards.''

The project is to be implemented through a corporation for which a Cabinet note will be moved soon. This corporation, with a seed capital of Rs 50 crore, will raise money through initial public offerings, and loans. Right now, the Railway Board is in the process of selecting a consultant to develop a business plan. The selection panel has already seen presentations from 23 consultants, including McKinsey, Arthur Andersen, Andersen Consulting, and PricewaterhouseCoopers. And the Railways is making sure the corporation has something to market. In the first phase, 8,000 km linking the four metros, Hyderabad, Bangalore, Pune, and Ahmedabad will be covered. Already, cables have been laid across 2,000 km and the work is to be completed in 18 months.

The Railways is equally serious about getting its real estate to earn some money. Worldwide, railways have used property in a big way to raise resources. Indian Railways has also flirted with the same idea in the past. Land along the tracks in Mumbai had been leased to railway employees to grow vegetables, but this was merely to prevent encroachments. Several proposals had been initiated in the mid-1990s, but never took off. One of them concerned building multi-storeyed commercial complexes at Chennai Central station, and at the Borivili, Andheri, Kalyan, and Thane stations in Mumbai. The first two floors were to be reserved for the Railways, while the rest were to be taken up by shops, restaurants, and offices. The other was to lease land near 100 railway stations to private firms to build budget hotels on a Build-Operate-Transfer (bot) basis. An Indian Railways Catering and Tourism Corporation was to be set up for the purpose.

Tapping real estate

Both proposals have now been revived. The Housing and Urban Development Corporation (HUDCO) has been asked to develop and market commercial complexes at New Delhi and Howrah railway stations, and at a vacant lot at Salt Gollah in Calcutta. HUDCO will also study the feasibility of developing a tourist resort on Railway land at Adra in Purulia district of Bihar.

Plantations are also on the agenda. The Railways Board is finalising a policy that will allow railway land, with areas varying between 3 acres and 50 acres, to be leased to private firms to grow trees. The brainwave came after the Railways raked in Rs 3 crore in 1999-2000 by harvesting teak, eucalyptus, and sheesham trees grown on its land.

If all this works out, it will net the Railways a cool Rs 750 crore this fiscal. But the Railways is not banking on this alone. With freight accounting for two-thirds of revenue, wooing that traffic back is also getting top billing. Realising that a lot of freight traffic is lost to roads because of poor connectivity to ports and warehouses, the Railways is addressing these issues. For one, it has got the Container Corporation (CONCOR) pick up goods directly from factories and transport them to retail outlets. CONCOR and Hindustan Lever Limited (HLL) have an arrangement on these lines since 1997 and in 1999, HLL moved 150,000 tonnes of freight through railways.

More importantly, the Railways is getting private investment for rail links to ports and godowns. It has had some success with gauge conversion of the line linking Pipavav Port in Gujarat with the nearest railhead. This project is being handled by a joint venture between the Railways, CONCOR and the Central Warehousing Corporation on the one hand, and Gujarat Pipavav Port and its partners, Port of Singapore and Maersk Shipping Line on the other.

Connecting ports

Other innovative arrangements are on the cards too. One is with the Chennai-based Continental Warehousing Corporation which has an inland container depot at a junction near Gurgaon on the Delhi-Jaipur line. The Railways will construct a siding to the depot, with Continental Warehousing picking up the Rs 3.9 crore tab. In return, the company has assured a daily traffic of 2,000 tonnes.

Similar projects are planned near Mumbai, Lucknow, and Calcutta. At the private port of Mundra in Gujarat, the Gujarat Adani Port has been allowed to construct and maintain a 57 km long broad gauge line from Mundra to the nearest railhead at Adipur at a cost of Rs 120 crore. The line is expected to generate five million tonnes of traffic a year. The additional revenue earned will be shared, with the Port getting the earnings for the Mundra-Adipur stretch after paying the Railways for the operational expenses. The port has got permission to construct the line while the commercial agreement is being negotiated.

Ambitious plans, but the Railways track record of implementation doesn't inspire much confidence. That, says Bannerjee, will change: ''We are not talking. We are acting.'' The industry is ready to second that. Says Confederation of Indian Industry Deputy Director General Manashi Roy, 57: ''There has been a sea change in attitude. Things are beginning to happen.''

Sceptics galore

Not everyone is impressed, though. Says former Financial Commissioner and Chairman of the Railway Capital Re-structuring Committee, 1994, A.V. Poulose, 74: ''These are diversionary tactics. The real issues are not being tackled.'' Indeed, Bannerjee has ignored key issues: the lopsided tariff structure, the inefficient accounting system, the unwieldy structure of the Railways, and the lack of managerial autonomy. Seconds Montek Singh Ahluwalia, 56, Member, Planning Commission: ''Till the issue of cross-subsidisation is tackled, other efforts won't mean very much.'' Asserts Anand: ''They have to tackle the issue of tariffs. How many times can they sell land?''

But there's precious little the Railways can do on that front, considering that the Railways, according to a member of the GOI task force on infrastructure, ''is saddled with a politicised system of decision making''. The remedies suggested range from increased managerial autonomy to complete corporatisation.

A committee headed by Director General of the National Council of Applied Economic Research Rakesh Mohan is examining the issue. But there's little guarantee that the report, which is to be submitted in July, 2000, won't meet the fate of several other reports gathering dust in Rail Bhavan. Says Agarwal: ''Consultants have to be pragmatic. Give advice that can be implemented.''

Will Indian Railways eventually become a lean, mean fighting machine? Or will it end up taking the slow train to nowhere? It's time the signals are made clear.

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