Home / Politics / Policy /  Debroy committee suggests corporatization of Railways

New Delhi: A committee headed by economist Bibek Debroy has recommended corporatization of the railway board and separation of roles of policy making, regulation and operations suggesting that the ministry of railways be only responsible for policymaking.

In its interim report that has been put on the ministry’s website for feedback, the committee suggested forming an independent regulator for economic regulation and a railway infrastructure company that will own the railway infrastructure, thus de-linking both from the railways.

Bibek Debroy is a permanent member of the NITI Aayog.

“There should be clear division of responsibility between the Government of India and railway organizations. The ministry will only be responsible for policy for the railway sector and the parliamentary accountability and will give autonomy to the IR (Indian railways)," said the committee in its report.

The railway ministry had in September 2014 constituted this eight-member committee for the mobilization of resources for major railway projects and restructuring of railways under then railway minister D.V. Sadananda Gowda, who felt that the railway board had become unwieldy because of overlapping roles of policy formulation and implementation.

The Debroy committee’s recommendations lay down the direction of the reforms required to turn around the national carrier.

Independent regulator

While the need for an independent regulator for determining tariffs has been raised before, the committee proposes the setting up of a Railway Regulatory Authority of India (RRAI) statutorily, with an independent budget. A shift of regulatory responsibility from the government to an independent regulator is required as the private sector will only come in if there is fair and open access to infrastructure, the committee said.

“The independent regulator shall ensure fair and open access and set access charges; establish tariffs in cases where there the market fails to discover a price; and adjudicate disputes between the track-owning organization and the train operators; and between competitors. This will make fair and open access a reality and open up both freight and passenger trains, in competition with Indian Railways," said the report.

This is crucial for providing a level-playing field to the private sector which has been reluctant to enter this sector.

The committee makes two other recommendations: to progressively phase out the practice of a separate railway budget by merging with the general budget and to ensure increases in passenger fares are accompanied by better passenger services and amenities.

Corporatization of railway board and decentralization

The committee recommends that the railway board function like a corporate board for railways. The chairman of the railway board should be like a chief executive officer, it said, and the composition of the railway board should be changed to five members (traction and rolling stock, passenger and freight business, human resources and stores, finance and PPP, and infrastructure) and two independent experts.

Suggesting decentralization of decision-making powers it says the head of each zone (general manager) must be fully empowered to take all necessary decisions without reference to the railway board.

“Within the revenue budget financial outlay, the zonal railways should have full powers for expenditure; re-appropriation and sanctions, subject to it meeting its proportionate earning target," the report said.

The report also underlines the need for railways to refine it accounting practices.

Private sector participation

The larger thrust of the recommendations is to make the railways attractive for private sector participation.

Apart from creation of an independent regulator and corportization of the railways, the Debroy committee recommends that the railways move away from non-core activities like production and construction, leaving room for private entry. It suggests separation of rail track from rolling stock with two independent organizations responsible for these.

“Private sector participation can be implemented in the form of service contracts, management contracts, leasing to the private sector, leasing from the private sector,concessions, joint ventures and private ownership," the report said.

Importantly, the committee has suggested the formation of a railway infrastructure company in the form of a special purpose vehicle that will own the railway infrastructure be created.

“The creation of such a railway infrastructure company makes the market for operating trains contestable," the report said.

Cooperative federalism, social cost accounting

The Debroy committee seeks a reallocation of the social cost and to reduce its burden on the cash-strapped transporter. It recommends a cleaner bearing of the subsidy burden for national projects on a cost-sharing basis between the union government and state governments on the one side and Indian Railways on the other.

It further recommends financial assistance from state governments to the railways for uneconomic branch lines and suburban passenger services or joint ventures with state governments for suburban rail, some of which are non-remunerative and of social value to the people.

“Suburban railways should ideally be hived off to state governments, via the joint venture route. Until this is done, the cost of low suburban fares, if these fares are not increased, must be borne by state governments on a 50/50 basis, with MoUs (memoranda of understanding) signed with state governments for this purpose," the report said.

Alternative funding

Most measures for tapping alternative sources of funding are already under active consideration of the ministry of railways.

Measures suggested include tapping multilateral funding agencies, take out financing by long-term funds, a long-term bullet bond or a zero-coupon bond and joint ventures with state governments for suburban rail. It also suggests leveraging railways’ assets to raise funds such as monetization of land.

The committee proposes to set up an investment advisory committee that will include experts, investment bankers and representatives of Sebi, RBI, IDFC and other institutions.

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