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Discussion on Reports
Rajnish KumarProfessor IT
National Academy of Indian Railways,
Vadodara
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Significance of IR
IR transports highest
passenger throughput in
the world.
Agriculture IR carries
around 87% of fertilizer
Mining IR carries
around 82% of iron & other
ores
Power IR carries
around 90% of the coal
produced in India
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Freight loading in
million tons increased
by 14 times
Passenger kms in
millions increased
by 16 times
Even when Route
increased only by
23%
Doubling, Multiple
lines increased only by 3
times
1947 till 2015 – The productivity story
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Some facts
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65% Trains for Passenger gets 30% Revenue
35% Freight gets 70% Revenue
65% of sections on High Density
Route are saturated
18% of the network
carries 56% traffic
492 of 1219 Sections (40%) are running at
more than 100% capacity
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Reports
Commonly known as Bibek Debroy Report5
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Debroy Report319 Pages – released in June 2015
Members
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Contents
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Annexures
Annexure la: Recommendations of Earlier Committees 193
Annexure lb: Stock-taking by IR of Earlier Recommendations 199
Annexure 2: IR Data and Tables 230
Annexure 3: Global Railway Restructuring Experiences 289
Annexure 4: Comparative Indicators, India and USA 307
Annexure 5: Stakeholder Consultations 312
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The specific terms of reference (TOR)
(i) Reorganizing and restructuring the Board and subsequently the Department so that policy making and operations are separated, the Department does not work in silos, policy making focuses on long term and medium term planning issues and operations focuses on day-to-day functioning of the Organization;
(ii) Promote exchange of Officers between the Railways and other departments;
(iii) Estimate financial needs of the Railways and ensure appropriate frameworks and policies are in place to raise resources, both internally and from outside the Government, to enable Railways to meet the demands of the future; and
(iv) Examine and suggest modalities for implementing the existing Cabinet decision on setting up a Rail Tariff Authority and give recommendations.”
Especially in view of (i) and (iii), the TOR is fairly broad and, de facto, amounts to a blueprint for reforming theIndian Railways.
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Highlights
Establishment of an independent regulator Railway Regulatory Authority of India (RRAI) with a separate budget and to be independent of the Ministry. RRAI will decide on tariffs to revamp the cash-strapped railways.
Railway Budget should be phased out with gross budgetary support to Indian Railways.
There is need to improve the internal resource generation and explore varied methods of financing but also to improve utilisation of available resources.
No privatisation of Indian Railway but allowed participation of private sector in the railway projects.
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Highlights
Separation of activities like running of hospitals, schools, real estate development, catering, manufacturing of locomotives, coaches and wagons from the core business of running trains.
State governments should be asked to entirely fund the Government Railway Police (GRP).
General Managers should have the freedom to choose between private security guards and RPF for security on trains.
The recommended changes should be implemented only by Union Railways ministry in the first five years including the resolution of the social cost issue.
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Key proposals for the future
Committee's recommendations based on three pillars:
1. commercial accounting,
2. changes in HR and
3. an independent regulator.
Responsibility for implementation of the recommendations should lie with the Minister alone.
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Proposed Structure of BoardC
hairm
anMember (Traction & Rolling Stock)
Member (Passenger & Freight Business)
Member (HR & Stores)
Member (Finance & PPP)
Member (Infrastructure)
Two outside and independent experts
It said Member (Finance & PPP) and Member (HR & Stores) needn’t necessarily be from within the railway system. Lateral induction from outside shouldn’t be ruled out. 13
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Board with existing services
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Here they have missed to join Member HR and Stores
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Gr A Service in IR
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Calculation of Inter-se seniorityTWO FORMULAE given
1st method - to merge the three seniority lists (ES, CSE, SCRA) rank secured by each officer in the three lists will be converted to a percentile number, so that each officer in the three seniority lists will get a unique number
2nd method - This methodology involves interpolation of officers of various services in a combined list, arranged in in proportion to total strength of each service.
The service with the largest number of officers will form the base. At the top of the combined list, toppers of all services will be placed in order of their date of birth – those born earlier being assigned higher seniority
Page 109-110 of Report 16
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Grouping of employees
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Grouping of Employees
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To balance the two conflicting needs for functional specialization and reduction of number of specialized categories/cadres/services in IR
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Zones and Divisions
This Committee is of the view that there are too many Zones and Divisions on IR and rationalisation of the same is required.
Further, it is this Committee’s view that there must be decentralization down to the level of divisions
The divisions must be treated as independent business units
Example of KOTA in WCR- 700 km from Jabalpur20
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DRM and ADRM
DRMs should be sufficiently empowered to handle all tenders connected with works, stores procurement, service or even revenue-earning commercial tenders, pertaining to their division.
This Committee further suggests that when a monetary ceiling is set on the financial powers of DRMs, it should not be set in absolute monetary terms, but should in some fashion be inflation-indexed.
Second if the earnings target is achieved, there should be a provision for re-appropriation across the budgetary Plan heads.
Third, some earnings of the division should be retained at the level of the Division, to be spent on specific purposes.
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DRM and ADRM
Fourth, DRMs should havepowers to sanction new posts that are financially neutral (created against surrendered posts).
Fifth, finance must completely be under the DRM. DRMs must have the option to choose between RPF and other security agencies.
Sixth, ADRMs should be empowered and made an explicit part of the administrative chain.
Seventh, before registering a vigilance case, one should ascertain the views of the DRM.
(In general, before registering a vigilance case, views should be sought from at least three higher reporting levels.)
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GM
The head of the Zone (GM) must be fully empowered to take all necessary decisions without reference to Railway Board within the framework of policies.
Zonal Railways should have full powers for expenditure, reappropriation and sanctions, subject to it meeting its proportionate earning target.
This would make each Zonal Railway accountable for its transport output and profitability.
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Integrated Station Development
• Posting Gr A officers as Station Managers of A and A1 Stations
• Role of RLDA and Indian Railway Stations Development Corporation (IRSDC) be rationalised.
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Rationalization of Cleaning Activities
Too many agencies
CTS – OBHS
It has quoted CAG Report No. 6 of 2007, the 2005-06 Performance Audit Report for the Railways
There is a need to streamline the present system for cleaning (stations, tracks and trains), whether done departmentally, or through out-sourcing.
Contracts should be longer term and there should be decentralization and streamlining of responsibility, so that it can be pinned down.
This is especially the case with stations and tracks.25
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Integration of IT Activities
The silos across IRCTC, CRIS and RCIL can only be broken down if IT and ICT receive emphasis at the level of the Board.
An ex-cadre post of a Chief Technology Officer (CTO) needs to be created, reporting directly to the Chairman of the Board
All IT initiatives be integrated and brought under the umbrella of this directorate exclusive of any departmental handling in Board.
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Accounting ReformReport accepts earlier recommendation
• Consortium of Consultants recommended reorganization of IR’s business into lines of business (LOB) and lines of services (LOS). It was also envisaged that IR will reorganize its management structure around these LOBs and LOSs.
• The accounting architecture has been reworked to align it with commercial principles along with generation of cost statements. The concept of cost sharing between LOBs has been envisioned, along with service level agreements (SLA) between LOBs.
• The concept of activity based costing has also been brought in.
• It has also been laid out that accounting reforms in IR have to be IT driven and various other subsystems have to be in place for a comprehensive accounting solution.
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Consultants submitted their First Report in May 2007, which was not acceptable to the Ministry. More work ensued and a Final Report was submitted in July 2010
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Accounting Reformsin 3 parts short term, medium term
Long term 24-48 months
LOB – Line of Business
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Budgetary Relationship with GoI
• Complex• Cannot be done overnight• Can be completed only after adopting commercial
accounting principles
Exact words from Report
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Sources of Finance
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Advice on Financing
6.41 Refinancing Pension Obligations - One of the major items of Railway revenue expenditure today is pensions.
Almost a fifth of revenue expenditure is accounted for by pensions. This year, a budget allocation of Rs. 34,900 crore, or about 22% of working expenses,
Talks of long term bullet bond, extensive actuarial modeling etc.
6.42 IR has now recently chalked up an ambitious investment plan for the next 5 years.
No concrete suggestions, in fact the Committee recommends that for raising resources for investments, an Investment Advisory Committee may be set up, consisting of experts, investment bankers and representatives of SEBI, RBI, IDFC and other institutions.
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Private Players for Operationsin Chapter 7: The Case for an Independent Regulator
Seven Types
The Forms Private Entry Can Take
7.1 (a) Service Contracts - IR can have the private sector perform many activities on the basis of competitive, well-designed, long terms contracts from the construction of infrastructure, to manufacturing of wagons, to maintenance of locomotives to ticket sales and inspection
7.1 (b) Management Contracts - Here, several private firms bid for 0 & M (operation and maintenance) contracts and the chosen contractor assumes responsibility for operations and maintenance of a particular activity, or even an entire Railway.
7.1 (c) Leasing to the Private Sector - This is also done on a competitive basis; but here, the contractor pays a fee for the use of fixed assets.
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7.1 (d) Leasing from the Private Sector - In many countries, there are private companies that buy equipment and lease them to the Railways. IR created a subsidiary, the Indian Railways Finance Corporation (IRFC), which issued bonds to private individuals and entities, to buy equipment, and lease it to the Railways.
7.1 (e) Concessions - A concession is a contract between a company and a government that gives the company the right to operate a specific business within the government's jurisdiction, subject to certain conditions.
Private Players for Operations…..2
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7.1 (f) Joint Ventures - Typically, joint ventures involve private partner companies contributing to the development capital, planning and management expertise in the development of land or other real estate owned by a Railway.
7.1 (g) Private Ownership - Here, the controlling interest lies with the private sector.
“However, we reiterate the point that this Committee does not recommend privatization, in the sense of sale of equity, for IR.”
Private Players for Operations…..3
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Case for RRAI
Railway Regulatory Authority of India
Answerable to Parliament, independent of Railways
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Timelines
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Timelines
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Timelines
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Beyond Five Years
All PUs into IRMC
Railway Budget phased out with Gross Budgetary Support only as
a paragraph
RRAI takes over and
Bifurcation into
Operations
IR Infrastructure Corporation
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Trade Unions Reject key proposals
• setting up of an independent regulator,• separation of ministry and railway board
and • allowing entry of private players to run
trains, among others.
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Acceptable to Trade Unions
• accounting reforms, • decentralisation of powers, • station re-development among others.
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Some Differences in Interim and Final Reports
Unbundling of the Railways can be taken up at a later stage, after five years, instead of starting to work towards that aim now, as suggested in the interim-report.
The realisation that the stage is not right for the Railways to start unbundling.
Committee of Railway Safety - The interim report suggested that rail safety be moved to the regulator, the final report says the it should continue to be under the Civil Aviation Ministry, as is the case now, instead of being made a subset of the regulator.
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The Rail Route to higher growth
Economic Survey 2014-15
It has dedicated one chapter in Vol I on Railway Sector
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Introduction
It starts off with simple facts to demonstrate that an increase in public investment would not crowd out private investments in India
And then goes on to build the case for targeting public investment to the sector where it can generate the largest spillovers- which could well be the Indian Railways.
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Relationship between Public investment & private investments
A decline in public investment by more than 1 percentage point between 2007-08 and 2012 -13, is accompanied by a general decline in private corporate investment by more than 8 percentage points (barring an increase during 2009-10 and 2010-11)
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Challenge of investmentFinancial
resources
Implementation capacity
The trick is to find sectors with maximum positive spillovers and institutions with a modicum of proven capacity for investing quickly and efficiently.
Two prime candidates are rural roads and railways
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Railways and Road share in Expenditure
Source : Indian Public Finance Statistics, Ministry of Finance.*; Includes both Centre and States. 50
Modal Share of FreightComparison with other systems
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Benchmarking
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Network productivity (as measured byNTKM (million) /network length) turns out to be much greater in China vis-à-vis both Russia and India.
Wagon productivity (as measured byNTKM (million)/wagon holding) is the lowest in India among the three
How much boost can vibrant railways provide to the economy? Forward and Backward Linkages of the Railways Albert Hirschman’s idea of backward and forward linkages
Backward linkage measures the effect on other sectors that provide inputs consequent upon a big push for railways.
Forward linkage measures the effects of the big push on other sectors that use railways as an input. An example of an industry that has excellent forward and backward linkages is the steel industry. Backward linkages include coal and iron ore mining. Forward linkages include items such as canned goods
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Linkages of the Railways(Based on US Govt Study)
BACKWARDRailways are found to posses strong backward linkages (demand pull from other sectors) with manufacturing and services
It appears that increasing the railway output by Re 1 would increase output in the economy by Rs 3.3.
FORWARDA Re1 push in railways will increase the output of other sectors by about Rs 2.5.
This forward linkage effect has declined over time but this is largely endogenous to capacity constraints in the railways sector which has led to reliance on other modes of transport.
Using Input-Output Analysis to Measure US Economic Structural Change Over a 24 Year Period”, 2000 accessed at http://www.bea.gov/papers/pdf/strucv7all.pdf
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Table 6.1 : Railways; Backward and Forward Linkages
Sector 1993-94 1998-99 2003-04 2007-08
Backward Linkage AGRICULTURE 0.01 0.01 0.01 0.02
INDUSTRY 0.63 0.76 0.93 2.04
SERVICES 1.28 1.32 1.24 1.23
Total Backward Linkage 1.92 2.08 2.19 3.29
Forward Linkage AGRICULTURE 0.13 0.12 0.16 0.07
INDUSTRY 2.15 2.03 2.11 1.18
SERVICES 1.13 1.13 1.16 1.19
Total Forward Linkage 3.41 3.28 3.44 2.45
Source : Calculations based on CSO input-output tables.
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POLICY RECOMMENDATIONS-KEY TAKEAWAYS
Greater public investment in the railways would boost aggregate growth and the competitiveness of Indian
manufacturing substantially.
In part, these large gains derive from the current
massive under-investment in the railways.
China invests eleven times as much in per-capita terms and underinvestment in the Indian Railways is also
indicated by congestion, strained capacity, poor services, and weak financial health.
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POLICY RECOMMENDATIONS-KEY TAKEAWAYSIn the long run, the railways must be commercially viable and public support for the railways should be restricted to
Equity support for investment
by the corporatized
railways entities and
For funding the universal service
obligations that it provides.
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But for all this IR has to play its part
structure of the railways
adoption of commercial
practices
rationalizing tariff
policies
overhaul of technology.
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Way forwardWhite Paper 2015
The next five years should change the face of Indian Railways.
Faster trains, modern trains, swanky stations, skilled staff, should be the Railways of tomorrow.
IR looks forward to becoming the nation’s carrier and a multi-modal integrator; making travel affordable, happy, convenient and reliable – a world class experience!
IR also looks forward to becoming self-sustainable!
By 2020, IR would make all efforts towards delivering safe and punctual services, increase average speed by 50% and increase loading to 1.5 billion tonnes.
Indian Railways, like the mythical Phoenix, will rise again to scale new heights.
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On 3-9-2015
Speaking at the annual convention of Automotive Component Manufacturers Association (ACMA), Sh Jayant Sinha, MoSF, said the government is “very focused” on infrastructure.
“After a decade of chronic under investment in Indian Railways we have decided we will invest Rs 8.5 lakh crore in Indian railways alone. This is extraordinary and will change the face of railways in India,” he said. http://indianexpress.com/article/india/india-others/govt-to-invest-rs-8-5-lakh-crore-in-railways-jayant-sinha/#sthash.I3x5OPBy.dpuf
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Further Reading
RITES Total Transport Report
High Level Safety Review Committee under the chairmanship of Dr. Anil Kakodkar
World Bank on India Transport Sector 2002
http://www.ciilogistics.com/autoscm/day1/THOMAS%20NETZER-McKinsey.pdf
http://www.mckinsey.com/insights/travel_transportation/transforming_indias_logistics_infrastructure
http://siteresources.worldbank.org/INTSARREGTOPTRANSPORT/2045693-1330028581692/23126042/Prsntn5-PaulAmos.pdf
http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTTRANSPORT/0,,contentMDK:20457516~menuPK:1323447~pagePK:148956~piPK:216618~theSitePK:337116,00.html
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Discussion
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