Indian Railways remains one of the last state railway monopolies. Almost all democratic countries have broken their monopolies, and with spectacular results, disproving the old myth that the railway is a natural monopoly. Indians, too, have learned since 1991 that monopolies are bad. Before their eyes competition has created a telecom revolution. Who would have imagined that even the poorest would have a phone — India now has 99 crore telephones compared to 50 lakh in 1990. Competition has lowered prices, improved services, engendered innovation, and diminished corruption. Similar benefits have accrued in breaking other monopolies — for example, of Air India/Indian Airlines in air travel and Doordarshan in television.
Fortunately, there is real hope for the railways. Prime Minister Modi is determined to modernize it, and he has in Suresh Prabhu a capable, dynamic railway minister. What needs to be done is also clear from a series of expert committees, the latest being the Bibek Debroy committee, which has posted its interim report online on March 31 for comments from the public. Based on lessons learned from the reform of other railways and the world’s best practices, here are ten steps to restore the glory of a great institution.
One, create distance between the owner and the manager, as in all professional enterprises. The owner, in this case the ministry, should only lay down policy for the rail sector and give operating autonomy to those who run trains. Two, unbundle Indian Railways into two organizations — one responsible for the track and infrastructure and another to operate trains in competition with others. Each will have its own board with independent and executive directors. Three, establish an umpire or regulator to ensure fair and open access to the track, set access charges, establish tariffs, and ensure safety. Four, open up both freight and passenger trains to competition with Indian Railways. An independent regulator and track organization are essential to attract private competition.
Five, to be competitive, Indian Railways must focus only on core activity of running trains and divest all peripheral activities — running schools, hospitals, police forces, printing presses, bottling water — which fritter away resources and distract employees. Six, grant autonomy to production and construction units so that they can independently raise capital from the market and compete for business from railway companies in India and abroad. Seven, give general and divisional managers greater autonomy and accountability in all functions, including tendering, procurement, and finance.
Eight, move to modern, commercial accounting for better decision-making and raising funds from investors. Today, it is impossible to assess real profitability or real return on investment. Nine, let suburban and local passenger services which lose money be run as joint ventures with state governments, who must bear the cost of subsidy in the spirit of cooperative federalism. Ten, leverage land banks, airspace above stations, and other assets to raise capital with the help of investment banks to become a healthy, commercial enterprise.
In the ideal world, governments should govern and not run businesses. But given political realities, it is sensible not to privatize but create competition within the rail sector. Competition will lead to better, cleaner, safer services and happier customers. It will mean more motivated, accountable railway employees, insulated from politicians, and whose bonuses are linked to profitability, while pensions are protected by the state. And the nation will be saved the incalculable cost of transport shortages. The ball is now in Prabhu’s court. If there is anyone who can implement these ten steps, it is he.