Repairists v reinventors

In its wide ranging consultations the Expert Group came across no one who suggested that all was well with Indian Railways and that nothing needed to change.

Universal agreement exists both around the symptoms of distress and also the need for urgent and purposeful action. No one denied that IR over the past decade has fallen into a vicious cycle of underinvestment, misallocation of scarce resources, increasing indebtedness, poor customer service and rapidly deteriorating economics. No one doubts that financial crises will rapidly follow the absence of forthright action.

The focus of the debate centres on the root causes and therefore the cure. The spectrum of opinion can be usefully polarised into two clusters: the 'Repairists' and the 'Reinventers'.

The 'Repairists' can be characterised as conservative, erring on the side of more cautious incremental improvements. Their arguments comprise two strands of thought: first that the majority of improvements can be realised by reverting to the conditions that made IR successful in the past (that is, pre- 1990); second that there is no alternative that can be proven to be better.

The first stream of thought - the 'ex ante' reversion to the conditions of success prior to 1990 - makes the point that a model that worked well for more than a century should not be discarded owing to a decade of distress. Their case is based heavily on an assumption that IR is fundamentally sound and that if current management were given the autonomy to operate free of political interference then all would be well - perhaps not perfect but basically fine.

The second stream of thought is the absence of an alternative solution with a proven track record of success either internationally or domestically. The general theme is that it is not worth losing the good in the pursuit of the perfect.

Internationally the repairists are genuinely alarmed - rightly so - about the traumas faced by many railways undergoing radical restructuring. They point to Europe in general and the U.K. in particular as a warning.

Domestically the 'Repairists' point out that the IR model is probably the best in the public sector. They will argue that the problems facing IR are fewer than most of the 'Navratnas' and 'Miniratnas'. They would argue that the key issue is how politicians behave, not how the railway are structured.

The apparent absence of a credible alternative model creates uncertainty. Indian Railways is simply too important to experiment with they would argue. Four billion passengers, 1.5 million employees and 40 per cent of the nation's freight cannot be used as guinea pigs.

The central argument of the 'Repairists' is that the experts should be given the autonomy to run the railways and that Parliament should provide support and guidance. Their argument is clear and appears compelling. There is little doubt that if the experts were given greater autonomy matters could improve dramatically - at least in the short to medium run.

There is no doubt that greater autonomy is necessary. The issue is whether this is sufficient to secure the long-term success of railways in India. The answer is probably yes if performance aspirations are modest. The answer is certainly no if the railways are to remain the cornerstone of transport infrastructure that they can and should be.

Reinvention case

The 'Reinvention' argument is also based on two streams of thought: the first is that turning the clock back defies the new reality of a liberalised India; the second is that the experts are not as expert as they like to think given the host of deep- seated managerial problems that cannot be wished away onto third parties.

The Reinventors argue that to modernise the railway system in India will require more than running it better. It will demand that it is run differently.

They respect the integrity and professionalism of those who have led the Railways. They merely observe that the system of governance and management itself must be deeply flawed if - a decade after the winds of economic reform have reshaped almost everyone else - IR has yet to start its journey of modernisation.

What alarms conservatives and radicals alike is not just that Indian Railways is haemorrhaging funds at a life threatening rate, but more worrying still is that those responsible for the health and well being of the institution are prescribing actions that will accelerate the demise of the system. The priority is to invest in debottlenecking points of congestion in the network (particularly on the saturated arterial networks of the Golden Quadrilateral linking Delhi, Calcutta, Chennai and Mumbai). Instead of debottlenecking, Indian Railways is being forced against its wishes to invest in initiatives that make matters worse not better. About half the Capital Fund has been absorbed in gauge conversion which has produced no discernible performance improvement. New lines have absorbed 20-30 per cent of borrowed capital only to increase the reach into areas where there is little or no traffic.

In short, it is the speed and gravity of the financial decline of Indian Railways that has transformed the conservatives into action oriented Repairists.

It has become clear that - with a few exceptions at the margin - the focus should be on commercialisation rather than privatisation. A secondary reason for adopting the commercialisation and not the privatisation strategy is global experience. It is clear from international experience that privatising railways is not only exceedingly difficult and controversial but also that no approach has yet proven to be satisfactory. In other words, the jury is out on the subject of which model for privatisation is best. In contrast, the verdict with respect to commercialisation is clear. This involves breaking the rail system into its component parts, spinning off non-core activities, restructuring what remains along business lines and adopting commercial accounting performance management systems.

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