‘Regulator should be kept out of Rail Bhavan’
Improving accountability, decentralising power and setting up an independent regulator are the key elements for the restructuring of Indian Railways, NITI Aayog member Bibek Debroy says.
The panel on restructuring of the Indian Railways, headed by Mr. Debroy, submitted its final report on Friday. The committee has set a five-year timeframe for implementing its recommendations and has suggested doing away with the Railway Budget, Dr. Debroy told The Hindu in an exclusive interview.
“Without commercial accounting, I do not even know what the rate of return on the projects is. This is not just about attracting private capital flows, but even with government and Railways, you need to know what your return is. So if I am borrowing the funds at, say, 7 per cent, I need to know what the return on projects is … at the end of it all, I need to do the cost-benefit analysis of how much it costs to run a train and is that train viable. You cannot do that without commercial accounting,” he said.
He said even if the projects were taken up for fulfilling social objectives, they needed to be accounted for and clearly quantified and funded out of the Budget. “Because, if we have the Railway Budget, the expectation of every MP is that give me a train for my constituency. And you are setting up a regulator, which is going to recommend or set the tariffs. So there is no purpose to the Budget,” he said.
On the independent regulator, Mr. Debroy said the recommendation was to set it up statutorily and not executively. “Why statutorily? Because we want the regulator to be independent and we want the regulator to be accountable to Parliament. We want the regulator to be outside the clutches of Rail Bhavan with a separate budget. The Ministry would set only policies.”
Here are excerpts from the full interview:
What are the major changes in the final report from the interim report?
The interim report had too many things. As a consequence, the big things tend to get missed. And people tend to focus on the small things.
So, in the final report, what we have done is to ensure that we do not lose sight of the big picture. And the three big building blocks in our report are transformation in accounting, or, in other words, a shift towards commercial accounting; human resources issues, or breaking down the silos; and independent regulator. So we have replaced the chapters or paragraphs, so that these three things are important and people do not misunderstand what the report says. The other two elements are entry of the private sector, not privatisation, into the Railways and decentralisation.
How do you see the progress of the Railways under the new government?
There are different ways of responding to that. One way is to look at what has been promised in the Railway Budget and see whether they have been met or not. And that in any case the Railway Ministry is doing. I think they have got a list of 37 promises in the budget. Another way to look at is, Are passenger amenities getting better? Passenger amenities are getting better. The trouble with something like this is the Railways are in a very bad shape; it is very difficult to improve passenger amenities overnight. Even if they are improved, Railways do not always publicise it. So passenger amenities are improving.
You can turn it around. Ask is it improving in second class. Probably not. Is it improving in all the 7,500 stations? Probably not. But they have improved certainly in segments that are much more visible —the Shatabdis, Rajdhanis, Durontos and the metros.
The decentralisation has happened at the level of general managers and now divisional railway managers. The Minister has managed to force senior officers to go to the divisions, travel on trains and give them responsibilities for different stations. This is decentralisation in a different sense and not decentralisation of powers. It is sort of pinning down the responsibility, that is clearly happening.
There has been an influx of money through quasi-government institutions. But this money is in the form of loans, which have to be eventually repaid. So, it would say the next item or the items which we have actually flagged, commercial accounting and independent regulator.
I would not look at it as completion of one year, but sort of building towards the reforms.
Why is there a need for commercial accounting?
Without commercial accounting, I do not even know what the rate of return on projects is. This is not just about attracting private capital flows but even in government and the Railways you need to know what your return is. So if I am borrowing funds at, say, 7 per cent, I need to know what is the return on projects. I need to do the cost benefit analysis of how much it costs to run a train and is that train viable. You cannot do that without commercial accounting.
The final report talks about doing away with the Railway Budget? Why so?
If we want the Railways to function on commercial aspects, then the decision should be taken on commercial grounds. I am not even going to use the word corporatisation; it may be an end goal. Even without corporatisation, a decision should be taken on commercial grounds. This does not mean the Railways need not have social objectives. They need to, but the social objectives should be clearly quantified and the government should pay the Railways.
Similarly, a social objective might be subsidised travel or un-remunerative lines, new tracks, so we have argued we should be clearly funded out of the budget. Dividend that the Railways pay is a misnomer, because it is not the dividend, but repaying the interest on loans. So let us not call it a dividend. So effectively, the Union government gives clean gross budgetary support for national projects and whatever social costs. You don’t take dividends from me at all. I run trains commercially and this has nothing to do with privatisation. Social costs are taken care of and legally, I do not need the Railway Budget. So why have the Railway Budget? Because, if we have the Budget, the expectation of every MP is that give me a train for my constituency. And you are setting up a regulator, which is going to recommend or set the tariffs. So there is no purpose to the Railway Budget.
The report talks about simplification of the Railways, but even corporates which have diversified are finding it difficult to simplify structures?
Yes, the Railways have become too large and are doing too many different things. They are running police forces and schools. I personally don’t think they should be running too many different things. But then the Railways also have got 16 zones. I am taking out metros as any metro should not be part of the Railways and should be out.
If the 16 zones are different in terms of historical evolution, why should someone sitting in Delhi at the Rail Bhavan say that this is the template for all the zones. The final report will spell out that the general manager and divisional manager of zones should decide on what is needed for the zone and there should be trust that they will be in the position to decide what to keep and what to shed. The trust factor is a psychological shift, which will be a minor change from the interim report.
On entry of private sector into the Railways?
The private policy already exists even if it is for wagons, coaches. What we are focussing now is the obstacles towards the entry of the private sector. The private sector will come and invest only if it is viable. Unless I have stations where real estate development is possible, why will the private sector come? Our thing is that in not more than 20-25 stations where this kind of real estate development is possible, so that the private sector comes in.
What about the feasibility of an independent regulator?
The committee acknowledges that the restructuring of Indian Railways is an onerous task and thus has recommended a timeline of five years for the three building blocks. We want the regulator to be set up statutorily and not executively. Why statutorily, because we want the regulator to be independent and we want the regulator to be accountable to Parliament. We want the regulator to be outside the clutches of Rail Bhavan and with a separate budget, and selection also need to be independent. The Ministry of Railways would set only policies and regulator enforces the policy
‘Regulator should be kept out of Rail Bhavan’