Has the Corridors of Power trying to scuttle Debroy Panel report?

While the report is being considered by the ministry of railways, its proposals like private firms running trains and govt bearing the passenger fare subsidy may not hit the priority list soon

Two recommendations of the Bibek Debroy panel on reforming the Indian Railways—allowing private firms to run trains and the government taking the burden of the Railways’ social obligations (subsidy on passenger fares)—evoked great expectations. But going by the indications from the Rail Bhavan, the time is just not ripe for these proposals to see the light of the day quickly.

While, for the record, the committee’s report is currently being studied by the ministry of railways, the priority areas for now are the ones outlined by railway minister Suresh Prabhu in his white paper presented in Parliament along with the Rail Budget this year, which include generating resources for the Indian Railways from external sources to improve infrastructure, services and management.

Ask the minister what is he doing with the Debroy panel’s suggestion of allowing private companies to run trains, and he is quick to respond: “You bring me somebody who wants to run a train and I will look at it.” His point is that, first of all the Railways needs to put its own house in order. What does that mean? In simple terms, it would be possible to provide the infrastructure and facilities to the private firms for running trains only after ensuring that the Railways’ own trains are running efficiently.

So, the crux of the matter is that the proposal to bring in private players for running trains may have attracted a lot of public attention but it may be difficult to implement quickly. The railway minister’s approach may or may not be correct, but it needs to be seen in the context that the two sectors in the country—telecom and civil aviation—have benefited immensely from the entry of private players and the Railways must try it at the earliest.

Another important suggestion of the Debroy panel is to make the government—state governments in the case of suburban trains—bear the burden of subsidies rather than the Indian Railways as is currently the case. Prabhu says, “Get me the ‘cheque’ from the finance ministry and we will start doing it immediately,” and also points out that it is not difficult to calculate what subsidy burden is even now with the current accounting practices.

Of course, this is also not feasible till the finance ministry agrees and in the current scenario when the government has to push public investment and also face impending 7th Pay Commission award burden besides allocation of additional resources to the states; but then it is also true that any worthwhile improvement in the Railways’ finances is not possible till a mechanism is put in place under which cross-subsidisation is funded directly by the government.

The latest review of the organisation’s functioning—by the ministry of railways—sums up the situation quite well: According to it, 65% trains are passenger trains and they are yielding less than 30% of revenue; and the rest 35% are freight trains providing 70% of the revenue and yet they receive the lowest priority in train running. Then, 65% of the sections on high density network are already saturated and 492 of 1,219 sections (40%) are running at more than 100% capacity. The state of congestion can be gathered from the fact that 18% of the Indian Railway network is carrying 56% traffic.

Though fixing a time-frame for bringing changes in the Railways is unrealistic, and Debroy panel has erred by fixing timelines for various changes that it has suggested—like the creation of an independent regulator in 3 years and funding of public service obligation after accounting reforms in 3-4 years—it can’t be anybody’s case that these could be avoided for long. On its part, the Indian Railways has already initiated the process for improving the accounting practices and putting in place a strong regulator, and the vice-chairman of the NITI Aayog, Arvind Panagariya, is expected to suggest a framework for the regulator within the next two months.

To his credit, Prabhu has in fact succeeded to a certain extent in taking the Railways’ financing of projects beyond the gross budgetary support and internal resource generation. The Railways has projected an investment need of Rs 8.5 lakh crore over the next five years, and it expects to get Rs 2.56 lakh crore from the gross budgetary support, R1 lakh crore from internal resource generation, Rs 1.2 lakh crore from state joint ventures, Rs 1.3 lakh crore from the PPP mode, Rs 2.5 lakh crore from borrowing, Rs 1 lakh crore from rolling stock lease, and Rs 1.5 lakh crore from institutional financing.

To begin with, LIC has already committed R1.5 lakh crore over five years and R17,000 crore has to be drawn in the current financial year, and the talks are also on with the Employees’ Provident Fund Organisation for a similar arrangement.

To get foreign pension funds on board, a World Bank-supported fund is being considered which can act as the anchor investor and also attract foreign investors to invest in the projects which can pay for themselves. According to the plan, the finance ministry is expected to complete a feasibility report within the next few months on this, the World Bank would be providing the seed capital and the Indian Railways will be putting in money, periodically.

These efforts are in the right direction, and the railway minister points out that investors’ interest in putting in money in the Railways has never been of the kind witnessed today, but the results are also to be seen on the ground.

The redevelopment of 400 stations cleared by the Cabinet, therefore, could be the test case, especially as the entire cost is to be met by leveraging commercial development of land and air space in and around the stations.

Even though allowing private players to run trains is not feasible in the immediate run, the government must tap foreign direct investment in construction, operation and maintenance in permitted areas such as suburban corridors through public private partnership; high speed train projects; dedicated freight lines; rolling stock including trains sets and coaches manufacturing and maintenance facilities; railway electrification; signalling system; freight terminals; passenger terminals and other areas of technological improvements including bio-toilets.

The fortnightly e-samiksha, a practice initiated by Prabhu to review the implementation of different projects on a regular basis transparently, must start throwing up identifiable results now and not just the talking points.