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The Bibek Debroy committee says the railways should establish a responsive and transparent accounting and costing system as the first step to a commercially viable railway system. Photo: Ramesh Pathania/Mint
The Bibek Debroy committee says the railways should establish a responsive and transparent accounting and costing system as the first step to a commercially viable railway system. Photo: Ramesh Pathania/Mint

Railways should undertake staggered reforms: panel

Shift to commercial accounting and greater decentralization over next 5 years suggested to lure private investors

New Delhi: The Indian Railways should undertake staggered reforms, starting with a transition to commercial accounting and greater decentralization, and then creating a conducive structure for private investment over a period of five years—that is the gist of the recommendations of a panel headed by economist Bibek Debroy.

The Debroy committee submitted its report to the Railway Board on Friday.

In the first two years, the committee said, the railways should focus on making a transition to commercial accounting to bring in greater decentralization to zones, divisions and production units and restructure its financial relations with the central government.

The railways should establish a responsive and transparent accounting and costing system as the first step to a commercially viable railway system, the panel said.

“Unless commercial accounting is adopted, the Indian Railways becomes non-conducive for investment," the report said.

It recommended the decentralization of certain decision-making powers in a manner so as to reduce the role of the Railway Board in the day-to-day functioning of zones. The committee said that within the revenue budget financial outlay, the zonal railways should have full powers with regard to expenditure, reappropriation and sanction, subject to them meeting proportionate earnings targets. This is expected to make the railway zones autonomous and accountable. The panel has suggested decentralization down to the level of divisions and said they must be treated as independent business units.

Separating the costs of its social objectives, freeing up the fiscal space available to railways by discontinuing the routing of external borrowings of railway public sector units through the Indian Railways and reviewing the dividend policy for railways by the centre are some of the measures suggested by the panel to restructure the financial relations between the centre and the national transporter.

The remaining three years, the report says, should see the setting up of the Railway Regulatory Authority of India (RRAI) legislatively, independent of the ministry of railways and with a separate budget.

“The RRAI will have the powers and objectives of economic regulation, including, wherever necessary, tariff regulation, safety regulation, fair access regulation, including access to railway infrastructure for private operators, service standard regulation, licensing and enhancing competition, and setting technical standards. It will possess quasi-judicial powers, with appointment and removal of members distanced from the ministry of railways," the report said.

The setting up of the regulator is expected to usher in a level playing field for investors, thus encouraging greater participation of the private sector.

Even as the committee recommended private entry, it was careful not to use the word “privatization", which it said was apt to misinterpretation.

Over the same period, the railways should improve its human resources management, the panel said, recommending a performance assessment system, the rationalization of its manpower and discouraging the “departmentalism" that affects working culture.

The report also lays down the roadmap after the first five years. The committee “envisages three points of view".

First, the existing production units of the railways be placed under a government SPV (special purpose vehicle) known as Indian Railway Manufacturing Co. and be exposed to competition from private sectors. Second, the railway budget be phased out after effecting changes in the first five years. And third, after the independent regulator is functional, bifurcation between Indian Railways Infrastructure Corp. and rest of the railways as train operators in competition with private operators should be considered.

“Restructuring a mammoth organization such as the railways has to be a calibrated and gradual process. At the same time, these recommendations and reforms should be carried out in a time-bound manner to revitalize the national carrier and improve its finances. In the absence of these changes within a timeframe, the underlying purpose of making the railways sustainable will be lost and it will fail to attract private investments," said Abhaya Agarwal, a partner at EY Llp who oversees the infrastructure practice at the consultancy.

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