The railways are approaching the Budget session of Parliament, with a particularly gloomy set of numbers for the current financial year (201617). For the first time anybody can remember, freight loading is likely to actually go down, fall short of not just the target but the level achieved in the previous year (2015-16). This will have an obvious negative impact on revenue, with earnings likely to fall short of target by over Rs.20,000 crore. It will therefore be imperative for the railways to outline a turnaround strategy in the Budget proposals for 201718. Though the railway Budget will not be separately presented anymore, the government has promised that all the information traditionally contained in the railway Budget papers will continue to be given. This information will be keenly pursued to get a sense of the recovery plan and its merit.
In the coming financial year, the railways are likely to have two new tools with which to deliver better. One is the longawaited and long delayed accrual based accounts which will accompany the cash based accounting system that the government follows. This will be an invaluable tool to get a sense of the cost and viability of different segments of operations and assets. This information will strengthen the management’s ability to determine the viability of a new railway line or train and also the depreciation burden across the board that has to be carried.
The second new tool will be an independent authority to recommend changes in fares and freight rates which should help the railways take commercially sound decisions, without being swayed by either political considerations (raising fares) or mistaken notions of monopoly pricing power (raising freight rates). But unfortunately, the utility of this authority, again long awaited, will be diminished as there is little scope currently for the railways to raise prices when it is steadily losing market share. One new tool which the railways have denied themselves is a reorganised Railway Board (there is still no sign of it), which will be more aligned with market segments and be headed by a chief executive, who will be able to call the shots at the end of the day instead of simply presiding over board meetings and holding over internally contentious issues.
To arrest the financial decline in the absence of pricing freedom, it will be imperative for the railways to improve productivity of both men and machines, and thereby achieve better margins. In trying to do so, accurate costing exercises, enabled by accrual based accounting, should help pinpoint uneconomical services and facilities. This, in turn, will help quantify the political and developmental burden that the railways are carrying.
As the merger of the railway Budget with the Union Budget will end the dual practices of the railways on the one hand paying dividend and on the other hand receiving budgetary support for its plan, calculating the political burden will only make sense if the railways are also corporatised. Efficiencies will not go up without corporatisation and the real signal to look for in the coming Budget will be indications of moving towards corporatisation and not just adopting accrual based accounting.
Once corporatisation takes place the railways can ask for a fresh capital injection to take care of the backlog in renewal of assets such as tracks and also modernise. The latter should improve efficiency and yield better margins. As the railways have a large staff and its pay and pension bill is non-negotiable, its long term survival will hinge on improving productivity. For this, it is imperative to reexamine the priorities for investment. Obviously the topmost priority must be adoption of new safety related technology. The spate of recent accidents leaves no choice in the matter.
Investment in last mile connections to ports and large industrial complexes with high revenue potential is already a priority. But another area cries out for help — information technology. The railways have already gone in for substantial computerisation. A concrete plan for extensive digitisation of the railways, which automatically makes available digital data on every conceivable aspect of it, must be drawn up. Not to do this will make the railways fall behind virtually every significant business organisation in the world. (Digitisation is now a global agenda.) Simultaneously, the railways must develop applications from the mountain of data which digitisation will generate to aid business monitoring and decisionmaking.
For example, there should be sensors along tracks and with all rolling stock to tell the management where wear and tear has taken a sufficient toll and replacement or refurbishing is immediately needed. This will obviate the need for physical inspection by costly staff. Again, the data already being generated through the passenger reservation system should enable a most elaborate system of dynamic pricing. This again should dovetail with and generate an agenda for workshops looking after rolling stock so that you have the extra bogies and engines when you need them.
It also needs to be asked why Suresh Prabhu, from whom a lot was expected, has been so slow with reform while being part of a government whose overriding agenda is pursuing disruptive change. Maybe because, being an accountant, he is inherently cautious. If that be so, is it time for him to move on. To replace him, the government should induct a topnotch CEO from the engineering sector, who has a track record of using technology for growth and profitability.