Government has stronger resolve to look for Innovative Solutions to generate & sustain the resource model for Rlys

A democracy by its very foundation promises to offer voice to each opinion that is raised within and outside set boundaries by its citizens. But when the opinion mounts to millions, the voice could be as thunderous as one could ever imagine. This is so true for the Indian Railways which is close to every Indian citizen’s heart, being a part of their memories in some form or the other. The railways ferries close to 23 million passengers per day, thus tickling myriad emotions and opinions, if not more. To satisfy each opinion may not be possible for an entity like the railways that is at the crunch of arguably the most coveted resource of all—cash.

The present government has shown stronger resolve to look for innovative solutions to generate and sustain the resource model. An important step toward it has been the introduction of 100 per cent foreign direct investment (FDI) in rail infrastructure. The Bibek Debroy committee set up in September last has come out with its recommendations, most of which seem to be in sync with the purpose for which it was formed: mobilisation of resources for major projects and restructuring of railways. Some of the recommendations are well-thought out and we might see them being implemented in the years to come. The only problem seems to be that most recommendations seem outrageously idealistic on paper and may never be realised. Any corporate restructuring may have tremendous repercussions and here we are not talking of any other organisation but a giant elephant that may take down governments with it if it happens to fall. The assumption that the private sector will only come in if there is fair and open access to infrastructure is a far-fetched one. Creating separate competition for the railways may go unaccepted with a number of associations and I don’t see it happening at least for as long as I can foresee.

If we study the ministry of railways’ sectoral guidelines for domestic/foreign direct investment, it clearly lists 17 key areas that it opens up for investment by both domestic private players or through FDI inflows. Of the 17, many don’t seem to be inviting participation of a lot of domestic players due to either the sheer magnanimity of the projects or due to the technical expertise involved. Most of the key areas, like the modern signalling systems, high-speed train projects, non-conventional energy, technological solutions for manned and unmanned level crossings, technological solutions to introduce safety mechanisms can only see the light of day if joint ventures are set up with foreign countries that have a strong and advanced rail network.

Domestic Indian firms don’t have the requisite technological expertise as far as these areas are concerned. FDI from countries like Japan, France, Russia, Canada and the US that have the best rail networks needs to flow in in most of the sectors listed. If we look at the figures of the cumulative FDI inflows between 2000-2014, the numbers aren’t too encouraging as far as investment projections are concerned. Out of the total inflows in the period, 35 per cent has come from Mauritius alone with Japan accounting for just 7 per cent, the US 6 per cent with Russia registering a paltry 0.40 per cent and Canada another meagre 0.22 per cent. What these numbers suggest is that these haven’t really been very attractive investment areas for foreign investors. Nor have the countries with expertise in modern rail networks been the prime investors in India.

If we look at the FDI figures of a country like Russia, the stark difference lies in the areas it attracted FDI inflows. Manufacturing attracted around 46.9 per cent of the FDI projects there and created around 98 per cent of the total FDI jobs. Indian FDI figures are dominated by the services sector that accounts for around 17.47 per cent of the total inflows. As far as non-conventional energy sources are concerned, between 1991 and 2014, its share in India were just 1.45 per cent of the total FDI inflows. If history has anything to suggest, the data is pointing only towards one direction.

The PM’s France visit has at least sealed the deal for a joint execution study for the upgrade of the Delhi-Amritsar railway line to a semi-high speed network and redevelopment of stations. All the focus and energy must be to encourage domestic players to tie up with foreign ones through joint ventures or technology partnerships, just like the one with France. When the PM pitches Make in India to German investors as a national movement, allaying fears of red tape and complex tax structures, he is not be barking up the wrong tree.

Apart from the “sophisticated” areas, there are very few avenues for small entrepreneurs as well. The ministry has tried to leverage its biggest asset: land. Areas like mechanised laundry and bio-toilets have the potential to attract domestic investment from private players. But how much interest have the players shown after the new regulations were announced or how much interest can the proposals draw is a separate matter. Very few private players have shown interest in the past and to bank on them may prove to be a fatal assumption. As suggested by the Bibek Debroy committee, complete shifting of the regulatory authority from the government to a separate regulatory authority may not be feasible for an organisation such as the Indian Railways. Instead of setting up separate bodies, it can follow a multidivisional structure with each zone acting as a division and as a separate profit centre. Ultimate decision-making powers and policy making should be centralised with the corporate office, i.e, the railway board.

The railways might well let go of the non-core activities as recommended, but in phases. When the private sector hasn’t been too keen to jump in, there is no guarantee of the same happening anytime soon. The golden dilemma of the Indian Railways doesn’t seem to be clearing out as decision making no longer remains an easy task when a billion lives are dependent on it and even more eyes waiting for a chance to pounce on for criticism.

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