ALTERNATIVE APPROACH TO RESTRUCTURING – I
ALTERNATIVE APPROACH TO RESTRUCTURING
Railway privatization is not an easy proposition
A.V.
POULOSE
Ex-FC(Railways)
Analyzing the
Rakesh Mohan Experts Group’s key recommendations to corporatise Indian Railways
(INDIAN RAILWAY) and separate policy from operations, the writer, relying on
earlier studies, rejects these, and sponsors an alternative approach of issuing
a national railway policy in the form of a Charter for Indian Railways, to
ensure greater commercial orientation without having to part with the assets or
direct government control.
Pointing to the fact that the Railways are an
“extremely complex organisation”, not permitting outside experts to grasp
easily the “many complexities that govern the operation of this massive
enterprise” the Rakesh Mohan Railway Expert Group has indicated an approach for
consideration. On a careful review of the massive restructuring experience of
Railways around the world over the last 15 years, the Group has very rightly
concluded that “our solution will have to be our own”.
With commendable modesty, it has suggested
that since “there could be other approaches”, the proposed one “be posed for
national debate so that the most practical strategy can be adopted”, and to
facilitate such a debate, “this report be disseminated to all stakeholders and
the public at large”.
Suspicions
need to be cleared
At the very first seminar to explain the
recommendations, a suspicion was raised that the Report was only rationalising
some pre-determined conclusions. Those who hold such a view cannot be faulted
because of some circumstantial evidence. The group asserts that “Indian
Railways is one of the most studied institutions on the planet” and that” “For
almost every conceivable question that can be asked there already exists a
comprehensive and rigorous report that lays out facts and indicates the
answers. “Yet the group does not provide a detailed discussion of the earlier
studies on corporatization. Why are we deliberately refusing to look at the
mass of knowledge presented to us by the earlier bodies?
Again, the Economic Survey, 2000-2001, points
to the policy direction – that the government would undertake corporatization
of departmental enterprises to be ultimately disinvested, as a means of
rightsizing the government, since under the existing arrangement the government
appears oversized because of the categorisation of employees of departmental
enterprises as government as government servants. Some time back, there was a report attributed
to the Prime Minister that policy and operations might be separated on the
Railways. Montek Singh Ahluwalia, a key player in the reforms process had
indicated at a recent international conference “that there are possibilities of
breaking up the structure of the Indian Railways” Even in other fora he has
been advocating corporatization of Indian Railways. These and other recent
events do point the needle of suspicion towards external pressure points, but
since a national debate has been proposed, the benefit of doubt goes in favour
of the group.
Is this ideology-driven?
In the absence of a full discussion in
support of corporatization of INDIAN RAILWAY, one is tempted to conclude that
the recommendation has been made in keeping with the current fashion in
economic development thinking. But without any intention of eventual
privatisation of INDIAN RAILWAY it ignores the currently fashionable theory of
privatisation as the panacea for all economic ills.
The philosophy and ideology underlying
economic development have moved in long waves, almost coming full circle. From
laissez-faire in the 18th century, with minimal direct role of the
state in economic activities, the philosophy shifted to greater State
intervention late in the 19th and early 20th centuries,
as “a major contributor not only to economic development but also to social and
political stability.”
Over the years political interference and
bureaucratic failure, leading to inefficiency and ineffectiveness of public
sector activities began to be highlighted. The fourth quarter of the 20th
century became “the age of privatisation”, swearing by the securing of private
sector participation in the form of disinvestment and denationalisation. This
has been fuelled by the example of the privatisation programmes adopted in a
number of industrial countries, notably the United Kingdom. International
agencies, and the World Bank in particular, have been the external agent and
the driving force for popularising privatisation in several countries.
Our own experience, with public sector
corporations, has not been very encouraging. We have also embarked on a
disinvestment drive, although implementation is facing several roadblocks.
Swami Nathan SA Aiyar has very tellingly brought out the ills of the Indian
public sector as follows: “It is no accident that the public sector suffers
from debilitating political and bureaucratic interference. Whatever the case
abroad, in India politicians and bureaucrats clearly feel that the whole point
of a public sector is to be able to interfere. Professors and journalists have
lectured for four decades the need for public sector autonomy to no avail. One of the main reasons for urging
privatisation is that it offers a better chance of reducing political
interference than lectures to ministers. This is a non-ideological conclusion
born of experience”. It would appear that the main objective of privatisation
should be the separation of economic from political power. Transformation of
INDIAN RAILWAY into a corporation, without any intention of privatisation soon
thereafter, will be a grievous retrograde step.
It also needs to be accepted that
privatisation of railways is not an easy proposition, as there will be very few
takers because of the special characteristics of investment and the slow and
low profitability.
The Expert Group’s view is also that ..”The
wholesale privatisation pursued in some countries is neither feasible nor
advisable in India and the UK experience reflects a hasty and ill-considered
experiment driven by political expediency, and is not a model to be followed”.
In any case, two successive railway ministers
have made policy announcements that the Railways will not be privatised. In her
last budget speech on February 26, 2001 Mamata Banerjee said: “I would like to
assure this House that Railways shall not be privatised.” As reported in the
Times of India (August 17, 2001), Nitish Kumar, the present minister “allayed
apprehensions regarding privatisation of the railways, saying privatisation of
British Rail had adversely affected the functioning of railways in that
country”.
How
does this fit with the divestment policy?
The Industrial Policy Statement of July 24,
1991, excluded Railways from the purview of ‘disinvestment’. It
was to continue as a departmental undertaking. The United Front government
continued the policy of disinvestment in non-core sectors. The BJP-led National
Democratic Alliance government classified public sector undertakings (PSUs) on
March 16, 1999 into strategic and non-strategic, retaining “Railway transport”
in the strategic group, to be outside the purview of ‘disinvestment’.
What needs to be emphasised is that Railway
transport is accepted as strategic by all government irrespective of party
alignments. Any restructuring to be attempted should be within the framework of
this declared national policy.
Evolution
of Railways in India
Railways started in India under the aegis of
private companies, and passed through several stages of State and private
ownership and brief spells of joint arrangements, before settling down as one
of full State ownership and direct State management, as recommended by the
Acworth Committee in 1924. Between December 31, 1924 and October 1, 1944, all
principal railways were taken over for direct State management either by efflux
of time or by exercising the option to purchase them.
Railways were built in India for national
integration, economic development and exploitation of resources, and above all
for military purposes. Railways have continued to be a highly visible national
symbol, and the role-played by them in times of crises like the Gujarat quake,
Orissa cyclone and military operations like Kargil is something that cannot be
replicated by any corporation. Nor can a corporate structure contribute to economic
development and national integration as the Railways have done.
Defence services have built up alternative
arrangements in all fields including postal service and communications network,
but are completely dependent on Railways for transport. All the strategic rail
lines are owned and operated by the Railways. There is no comparison between
other infrastructure facilities and railway facilities as far as transport by
rail is concerned. This fact needs to be
kept in view while coming to any conclusion on the suggestion about
corporatization of IR.
Railway operations require constant
co-ordination with state governments and other wings of the Centre. If only for these reasons, it is necessary
that the government exercises direct control over their operations, which is
possible only when they are run as a departmental undertaking.
Railways
will be better off as a departmental undertaking
Over the last decades and more suggestions
have been made in various quarters for converting the railways into a corporation.
The Government of India Act 1935 proposed to set up a ‘Federal Railway
Authority’. The Indian Railway Enquiry Committee 1947 (Kunzru Committee),
recommended the setting up of a Statutory Corporation, to be known as the
“Union Railway Authority”. The Estimates Committee of Parliament, which
reviewed this question in 1955-56, also advised against the reform for the time
being. None of these got implemented.
A comprehensive study by the Railway Reforms
Committee (RCC) set up in 1981, inter alia, “to recommend the best system
suitable for the genius of the country” led to the conclusion that
corporatization was neither feasible nor desirable.
The RRC had benefited by an evaluation of
this issue for them by the Indian Institute of Management (IIM), Ahmedabad,
whose study concluded that their “overall evaluation” was “for retaining the
Departmental Organisation with a Board for the Indian Railways”, RRC had also
sought the opinion of experts associations, and supported by the overwhelming
opinion in favour of the existing set up, it concluded in 1985 “that from the
point of view of financial viability, stability of the organisation, the burden
that devolves on the organisation to face situations like internal and external
emergencies, the Departmental form is the most suited for Railways” and
recommended that “the present set-up wherein the Railways are being run as a
Department of the Central Government should continue”.
The
usual arguments in favour of corporatization are:
·
Railways
can be freed from political and other external interference;
·
Fetters
of the rigid governmental procedures can be removed;
·
Employees
can benefit by sharing in the prosperity of the enterprise; and
·
Greater
freedom in pricing can be secured.
That these advantages are illusory has been
convincingly established by RRC, by pointing out that:
·
Corporations
are not free from interference in day-to-day operations.
·
Interference
of the Railways is somewhat high on account of the role it plays, with
far-reaching impact on the everyday life of the people.
·
Conversion
of the Railways into a Corporation not likely to materially reduce the extent
of interference in their day-to-day working
Regarding autonomy and flexibility, Railways
already enjoy much more of these than what is available to public sector
undertakings (even the Navaratnas), which are subject to numerous controls of
the Public Investment Board, the administrative ministry, and the finance
ministry.
While there is comparatively more
transparency in what happens in a departmental undertaking like the Railways,
the indirect control and influence exercised by government on PSUs are not
transparent. RRC had quoted, in this context, a telling observation by ARC in
their Report on Public Sector Undertaking (October 1967), which holds good even
today. ARC had stated that the controls exercised by the government over these
undertakings, “in an indirect manner results in far greater control of these
Undertakings than is necessary or desirable … One notable aspect of indirect
control is that while the Government influence the decision of the Public
Sector Undertakings they do not share the responsibility of this decision”.
Much the same story was brought out by the
Economic Administration Reforms Commission (EARC) in the following words (Report
No.4, January 1984). “Unfortunately
in the name of public accountability numerous checks and controls are
introduced at every stage, which hinder executive action, concentrate decision
making powers in the Ministry and in fact dilute the accountability of the
Management”. “It will not be an exaggeration to say that the ministries have
tended to integrate and absorb the public enterprises and convert them into
mere extensions of themselves”.
Matters have not changed much
Several committees have thus studied this
question, and the preponderant view has been that INDIAN RAILWAY should
continue as a departmental undertaking with sufficient freedom for railway
management to run it as a commercial undertaking.
More recent suggestions and observations on
this subject have come from The Committee to Study Organisational Structure
& Management Ethos of Indian Railways (Prakash Tandon Committee), the
Railway Fare and Freight Committee (RFFC-Nanjundappa Committee) and the Railway
Capital Restructuring Committee (Poulose Committee).
Separation
of policy from operations
This is a vital recommendation of the group.
A separate INDIAN RAILWAY executive board in the corporate structure is to run
the Railways, while policy will be settled by the ministry. The ills diagnosed
are real, but the remedy suggested is debatable. This again is an issue
discussed threadbare by the RRC. The ministry of railways combines the
functions of the secretariat of the minister of railways, and as the
professional apex of the railway hierarchy. It has to assist and advise the
minister “in the formulation of policies, coordination with other central
ministries, State Governments, Planning Commission, and other relevant
authorities, and also in the conduct of the work pertaining to Parliament”. It
also supervises and directs the operations of the Railways.
This system has the advantage that those who
formulate the policies are directly accountable for the results of the
implementation of those policies, and, therefore, for the performance of the
railway system. It guards against the possibility of an ‘ivory tower’
approach in policy formulation and also makes available to the minister a
secretariat with first hand knowledge of railway working. It also eliminates an unnecessary
intermediate tier between the board and the minister in the form of a separate
ministry.
Separate
railway budget
The
Group has made a symbolic recommendation about dispensing with the separate
railway budget on corporatization. Since corporatization is not supported, this
also fails through. As long as Indian Railway continues as a departmental
undertaking, the scheme of a separate railway budget should continue.
Alternative
Scheme
Having concluded that the restructuring
recommended by the Group is not acceptable, it is necessary to look for ‘our
own’ alternative scheme to meet the objectives listed by them. These are:
·
To
transform INDIAN RAILWAY into an efficient, customer-focused organisation.
·
To
implement a successful corporate planning approach, in a commercial corporate
framework, where investment programmes and their implementation are closely
linked to the returns to be achieved and the financing structure.
·
Institutional
separation of roles, into policy, regulatory and management functions.
·
Clear
differentiation between social obligations and performance imperatives.
·
To
create a leadership team committed and capable of redefining the status quo;
the leadership team needs to be selected from the best, rewarded for success,
measured against performance targets and be in place long enough to do the job
properly.
All these can be achieved, without disturbing
the existing ownership pattern and retaining direct government control, through
the national railway policy in the form of a Charter for Indian Railways,
recommended by the Railway Capital Restructuring Committee 1994 (Poulose
Committee). The Railway Minister’s budget speech described these as path
breaking recommendations, but then nothing happened. Such a Charter, laying
down the paradigms within which INDIAN RAILWAY should operate is essential to
enable the system to function with adequate freedom within prescribed policy
prescriptions.
A clear enunciation of the powers and
responsibilities of railway managers, and the responsibilities of the State,
through such a document will bring about the desired transparency. The biggest
advantage of such a policy enunciation is that it will facilitate carrying out
of reforms without actually parting with the assets. This should be a document
duly approved by the Union Cabinet, and notified in the official gazette after
its approval by Parliament. This together with a much-needed capital
restructuring, also recommended by the Poulose Committee, would enable the
Railways to recoup much of the financial health lost in the last decade.
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