BackWhat’s important is time-driven change: Suresh Prabhu
Completion of dedicated freight corridor, increased capacity, participation of states and more decentralization key to turning railways around, says Suresh Prabhu
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Railway minister Suresh Prabhu has captured the interest of the industry and investors after presenting what was hailed as a visionary and promising railway budget in February. The railways has been given a new lease of life with Prabhu monitoring the implementation of his budget promises.
In an interview, Prabhu said that completion of the dedicated freight corridor, increased capacity, state government participation and further decentralization will be key to turning the railways around. Policy announcements for private sector investment are on the anvil, he added.
You have drawn up what seems to be a credible investment plan of ₹ 8.5 trillion in the railways over the next five years. You have explained how you would mobilise ₹ 1.5 trillion from LIC, broadly ₹ 2 trillion from the national investment and infrastructure fund, float tax-free bonds, target sovereign pension funds in addition to the money you will get in the form of budgetary allocations, private investments and investment of surplus funds of PSUs (public sector undertakings). Most of this investment is debt. Are you confident railways will be able to repay and service this debt?
The fact that we are going to expand capacity, expenses will not necessarily go up in that proportion. We have a certain fixed cost—the platforms are already there, the tracks are already laid down, even if you lay down more tracks you are going to run more trains so you are going to get more revenues out of it. Hence, the fixed cost gets absorbed over a much higher revenue. Railways has a huge fixed cost. So when the fixed cost gets absorbed over a higher revenue, the profitability will be higher, so that (repayment) will be taken care of.
To make sure we handle it properly and I am more concerned about it because I am a very conservative person—I have already asked SBI Caps to look into the entire modalities of cash flows, etc. of how to match the future revenues. In any case, loans such as LIC, loans such as World Bank, finance ministry loans, etc. will be available to us for a much longer duration; for example, LIC... we have already decided maturity will be 30 years... World Bank also would be possibly that.
So, that is one.
Now to get new customers and to retain existing customers, we must make investments—if you don’t augment the capacity, how will you do it? So augmentation of capacity is a must. Anywhere in the world when you make infrastructure, it is a capital expenditure that is not possible to meet from government’s current revenue.
So you have to borrow. The question is, are you borrowing for the right purpose? If I am borrowing for salaries, it’s bad, but if I am borrowing for something like capital expenditure and I don’t do that, then I am doing the railways a disservice.
You have set a target of achieving 88.5% of operating ratio, the best in nine years, by the end of this fiscal. But where do you see railways operating ratio after five years and after the envisaged ₹ 8.5 trillion of investment has been made into the railways? Do you think it could match or better the 76% achieved in 2007-08?
If we complete the dedicated freight corridor in the next three years, which I am really pursuing and I hope it happens; No. 2, if the Pay Commission is not going to put undue burden on the railways; third, we continue to invest the money we are planning to invest in the five years—I feel the operating ratio should be really really good. I don’t want to give a number for it because there are too many improbables you cannot factor in—like the Pay Commission is completely an externality to the railways.
But I can definitely tell you that if railways can increase its freight (loading) to 1.5 billion tonnes, which is our target for five years which again is dependent on the dedicated freight corridor getting ready, the operating ratio will be significantly better.
It is very clear that you are keen to bring in private investment in the railways, but a lot needs to be done to achieve this. In your budget statement you had identified station development as a key area where private investment could come in. Now the Bibek Debroy committee has submitted its interim report in which it suggests separation of roles of policymaking, operations and regulation, setting up a regulator, restructuring the railway board and opening non-core areas for private sector contracting, as some of the ways private sector participation could be encouraged. What measures are on your priority list to improve private sector’s comfort for investing in railways?
I do not want to comment on the Bibek Debroy committee report for the simple reason that the chairman and members have told me it is an interim report, so it might change depending on the feedback from the stakeholders and when the final report is submitted to us, which they are likely to do in the month of August. I have already announced in my budget speech that we are setting up a regulator. I have requested vice-chairman of Niti Aayog, one of the most eminent economists of the world, Dr Arvind Panagariya, to look into a proper framework for it. Most of the things I said in my budget speech are under various stages of implementation. In that I said that we need to revamp the PPP (public-private partnership) cell, so we are already working on that, even processes are being looked into.
Areas where we see great private investment—one is private freight terminals, and second is station development.
For station development we are already trying to look into new possibilities. We are trying to look into a new programme, which will be completely transparent in its content. There are three-four things we can do—one we will continue to do station development in areas we have already identified—there is a station development authority which is working on it. Secondly, we are entering agreements with all the state governments excluding smaller states because I don’t want to burden them with this. Where most of the major states who have agreed to work with us, we’ll also try to put some of the station development through this. Why we could not develop stations earlier is because state governments and local self-governments did not cooperate as much. Now when they become stakeholders, this will be taken care of. Thirdly, we are developing certain greenfield stations where we have said we will do satellite terminals because most of the cities are congested so why not develop stations a little outside? So these satellite greenfield stations can also be done with the PPP model. Fourthly, and that is for the existing stations where there is a large footprint, this could also be PPP through a completely transparent process on the website, (which) we will be announcing soon.
What about non-core activities for private contracting, which is easy to do?
I do not want to call what is core and what is non-core, we will leave that for another day. We need to look into many issues, but for me what is important is to improve the health of the railways, improve customer service, to improve safety record, to make it more and more people-friendly, more customer-friendly, more and more technology-oriented. We are doing all of that. There are many things to be done but if I start doing many things I will not be able to focus. So instead of looking at the core, non-core, let me put it the other way around: I am addressing my core concerns now, we will look at other concerns parallel.
What is your view on whether the railway organization and board in its current form needs restructuring?
I don’t want to comment on it because it is like pre-judging an issue the committee is already looking into. We keep looking into many options at all times. See, there is nothing like a static organization, an organization has to change constantly. But what the change means will depend on the time of that change. So time-driven change is what is important.
For me the only reason why you should try to do something is that the outcome will be far better and therefore the process is not as important as the outcome.
You have emphasized the need to make state government stakeholders in railways’ growth story. You are soon going to announce MoUs (memorandums of understanding) for railway projects with state governments. Now taking this spirit of cooperative federalism forward, the Bibek Debroy committee has suggested that states also provide for the subsidies for suburban passenger services and there be a cost-sharing among states, centre and railways for national projects. Do you feel this is desirable?
For the first time in the history of the country we have created a company with the state government and the railways as partners—what they should do, let the company themselves decide. If we decide everything from here then what is the difference between what is happening now and what we are trying to change? How else can we achieve decentralization? Decentralization means letting stakeholders such as states have a role to play.
A reform you have already initiated is that of decentralization of powers by delegating tendering powers to the general managers. What other powers are you likely to delegate to lower levels of the organization?
This will be completely need-based, need-driven. The process is already under various stages of operationalization. I had appointed the Sreedharan committee to look into this issue. They have given their report, which is under circulation to all general managers for their comments. Mr Sreedharan came in because I had already decided to delegate powers. He told me it is a watershed decision in the history of the railways. So we want to really make it happen.
Powers should be delegated to general managers, division managers and even to the DRMs (divisional railway managers) and in some cases to the station masters because things like cleaning, which are his responsibility, he has no power over.
Focus on increasing freight business is important to generate revenues. In this budget, however, due to rationalization of the structure, the freight rates went up which are already high on account of the traditional cross-subsidization of the passenger segment. Going ahead, would you look to correct this imbalance to check the opportunity cost it implies by loss of market share to the roads sector?
A Crisil report has said that the effect of this rationalization is insignificant. Moreover, this is not the first time—rationalization is an ongoing process.
We need to do so many corrections because we have already inherited a legacy.
In fact, what has happened is that we have inherited a phenomenon of underinvestment. While railways underinvested, roads invested more than railways and as a consequence of that we have lost a substantial part of our traffic to the roads sector. If we want to correct that imbalance, it won’t happen through commercial measures such as changing rate of freight. It will happen only if you increase capacity.
No new trains were announced in the budget. You had said that a review was being conducted to identify which new trains were required. Is this exercise over, would you be announcing new trains?
We never said that we will not start new trains. We only wanted to delink the announcements from the budget because budget is a financial document and it gets probably distracted by that. We want to cater to the growing requirement of the people but we want to do it in a way that it actually meets the requirements of the people. So that is what the exercise is still going on for and then we’ll definitely announce (new trains) after it’s completed.
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If you enjoy your work, anything that you do, you never get tired. Nothing is possible without teamwork.
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