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Business News/ Opinion / Track to the Future

Track to the Future

A British-era rail network band-aided with some modernization is in no position to cater to fast rising demand

Photo: Priyanka Parashar/MintPremium
Photo: Priyanka Parashar/Mint

When Narendra Modi won a parliamentary majority last year, The Guardian commented, “today may well go down in history as the day Britain finally left India". It is only fitting therefore that one of the first major reforms initiated (not just continued from the previous government) by Modi is the restructuring of the Indian Railways—a quintessentially British hand-me-down asset. A panel headed by Bibek Debroy, economist and member of the NITI Aayog, delivered its final report on railway restructuring to the ministry on Friday.

The Indian Railways is the stuff of legend and train travel has inspired much poetry and prose over the years. It is impressively large—13,000 passenger and 8,000 freight trains carrying 23 million passengers and 3 million tonnes of freight each day. Its network of 65,000 route km is one-and-a-half times the circumference of the earth. It is one of four members of the billion club—carrying over 1 billion tonnes of freight in a year. It also employs more than 1.3 million people, making it among the world’s 10 largest employee systems (a list topped by the US and Chinese armed forces).

Of course, big does not generally mean efficient or agile. Since Independence, freight and passenger loading has gone up nearly 1,500% but route length has only gone up 23%, resulting in significant congestion. According to a white paper written in February, the biggest challenge facing the railways is its inability to meet the demands of its customers, both passenger and freight. The white paper adds “apart from the quantum of investment, quality of delivery is also an issue. Cleanliness, punctuality of services, safety, quality of terminals, capacity of trains, quality of food, security of passengers and ease of booking tickets are issues that need urgent attention".

A British-era rail network band-aided with some modernization in signals and ticketing is in no position to cater to fast-rising, 21st-century demand. Passenger service yields (US cents per km) are a fraction of those in China and Russia, but freight yields are comparable or higher. Freight prices have inexorably risen in India to subsidize passenger fares. While this has permitted the railways to operationally chug along, there has been virtually nothing left for investment. Pending projects require an investment of nearly 5 trillion ($80 billion), of which about half is required for priority projects. New projects will require more.

Rail systems around the world have undergone substantial changes over the last 30 years. Japan National Railway (JNR) began a major restructuring in 1987 that is only partially complete today. JNR was broken up into one national freight and seven passenger companies, of which only three passenger firms and the freight company have been privatized; the rest remain in a national holding company. In the US, the freight system has become a flexible, modular, multi-private network with freight cars owned by logistics companies. The passenger system remains national and loss-making. In Canada, freight is the purview of two listed private companies and passenger traffic is the responsibility of the nationally owned but corporatized Via Rail. While models vary widely and are country- and path-dependent, one commonality in market economies appears to be that freight systems are substantially private and passenger systems are corporatized but nationally owned.

The eminently sensible Debroy panel report recommends just such a strategy. Many of its recommendations are about getting the railways to corporatize, decentralize and simply become more agile. The report’s first major recommendation is to abandon the proprietary and incomprehensible system of accounting that the railway uses and to replace it with a modern IFRS-type commercial accounting system that is comprehensible to the market. This is, of course, easier said than done, but will be of major advantage in understanding average and marginal costing, capital expenditure and returns and ultimately will provide a framework for viable pricing that is linked to capital and operations cost. A second recommendation is to separate core functions (rail operations) from non-core functions (schools, hospitals, etc.). Once set apart, the report recommends that many of these non-core functions be outsourced. A third idea is to streamline the functions and the sourcing of talent and to balance the need for specialization with the number of specialized categories. It encourages lateral entry for specialized posts.

Beyond the administrative restructuring, the report focuses on the financing and generation of resources, the relationship with the government of India and the setting up of an independent regulator to permit gradual private entry into the broader railways system. While the report is sensible and gradualist and is being delivered to the most commonsensical minister in Delhi, it may get derailed on this last idea; of slowly allowing private entry. Suresh Prabhu and Modi should not back-track and should set India on the (Britain) free track by accepting this report in totality.

P.S. “Freedom is for the educated people who fought for it. We were slaves of the English, now we will be slaves of the educated Indians", Khushwant Singh in Train to Pakistan.

Narayan Ramachandran is chairman, InKlude Labs.

Comments are welcome at To read Narayan Ramachandran’s previous columns, go to

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Published: 14 Jun 2015, 09:15 PM IST
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