Stagnation impeding Railways’ efforts to address new challenges

THE political justification for merging the railway budget with the Union Budget in 2017 was ostensibly to streamline the financial framework of the government. It was expected to improve financial planning and the allocation of resources across different sectors. It would potentially lead to the synchronisation of railway policies with other infrastructure sectors, resulting in the coordinated development of transport infrastructure, which is crucial for holistic economic development.

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To what extent these objectives have been achieved is still an open question, but it has made the Railways a full partner in the infrastructure development initiative. This has led to the investment of ever larger sums in the Railways, with the objectives of enhancing freight growth, infrastructure upgrades and safety enhancements.

As part of this infrastructure development initiative, this year’s railway budget has a capital expenditure allocation of Rs 2.62 lakh crore, the highest ever. It is nearly 0.8 per cent of the GDP. A similar sum was provided in last year’s budget. These allocations are significantly above the Rs 28,174 crore provided in the 2013-14 budget. Such large investments should have shown up in an increase in the market share of the Railways, but that has not happened. Nor has the situation improved in the passenger sector. Waiting lists still remain, and coaches continue to be overcrowded even though the passenger market share of the Indian Railways (IR) is falling. The railway budget makes no mention of how these issues, especially the steady erosion of market share, will be addressed.

Why the huge investment has not shown up in a rise in the market share of the IR is a bit of a mystery. On the other hand, when it comes to roads, a similar level of investment is visible in a larger and improved road network. In the 1950s, the market share of the Railways stood at 85 per cent. It was, however, clear that this was nothing but the concomitant outcome of the undeveloped road network and would start shrinking as the economy grew and the road network expanded. Based on the experience of some developed countries, it was felt that the Railways should move to holding on to 40 to 50 per cent of the share by evolving appropriate marketing and network development strategies. To enable the Railways to maintain a market share of 40 to 50 per cent, the incremental loading growth rate had to be about 1.5 per cent above the economic growth rate. If the Railways had been able to achieve this, its market share would have stabilised around 40 to 50 per cent. This change should have taken place in the 1990s. But it did not, and the growth continued to be 1.5 per cent lower than the economic growth rate, resulting in a steady decline in the Railways’ market share.

In 2001, it was around 36 per cent. And today, it is hovering around 25 per cent. And it seems that the government, despite pumping in huge amounts, is unable to reverse the trend. This is quite a serious issue because, in order to reduce logistic costs and carbon emissions, the Railways needs to move at least 40 per cent of the in-land freight demand by 2030. This is a huge challenge for the reason that the consolidated in-land freight demand forecast for 2030 is 8,220 MMT (million metric tonnes). And if the Railways is targeted to move 45 per cent of it, the IR will have to ramp up its capacity to moving 3,700 MMT from the current 1,539 MMT by 2030. This requires the IR to grow by 15.7 per cent CAGR (compound annual growth rate). This is a tall order. The budget documents give no clue on how the IR proposes to achieve this or why the huge capital expenditure fails to increase the market share.

The problem of falling market share seems to be perennial. It has been declining since the 1960s, suggesting that the Railways has some broad structural problems that need to be fixed. In a way, these has been recognised. The IR is one of those organisations that has been the subject of study by numerous committees and commissions before and after Independence. The first one was the Robertson committee of 1902. And the last one in the series of panels was the 2014 Bibek Debroy committee on railway reforms. Where do we go from here? It is one of those difficult questions, especially when so many expert committees have not been able to find an answer to get the IR out of the rut. This does not mean that all is lost. But it does bring home the need to re-look at what the IR has been doing right and what it is getting wrong.

The IR, the main mode of transport after Independence, has helped build the economy. It is still capable of doing so, provided its structure is adapted to confront the novelty of the new technologies and the resultant complexities. It is clear that there has been a drift that has led to stagnation because of a lack of vision on how to address the novelties.

Without a vision, the Railways cannot determine which of the past methods and rules it should retain and which ones it should jettison to become the premier mode of transport of the 21st century.

This lack of vision is perhaps one of the reasons why the Railways has not been able to address the issues, restraining it from playing its due role in the economic development of this country and raising the market share. What should this vision centre on? It should focus on changing the rule structure of the organisation. After all, it is rules, formal and informal, as Nobel laureate Douglas North puts it, that constrain human behaviour. And these rules evolve in accordance with the intentionality of those who make them. Intentionality is the product of social learning and how it shapes the structural foundation of the organisation and its capacity to adapt to changing circumstances.

The IR suffers from various instabilities. They come from the very short tenures of the board members and the constant change in ministers, which is inevitable in a democratic system. A new minister brings in his or her own intentionalities, which have an impact on how the rules are interpreted. It may explain why the market share has been eroding. The current Railway Minister, Ashwini Vaishnaw, is confronted with the problem of addressing the endless novelty of issues arising from the increasing complexities of the IR’s evolving technical and market environments. These problems will only mount as new technologies like AI (artificial intelligence) bring in fresh complexities. He is already facing that problem with new signalling systems, which have led to accidents. Besides, many decision-makers do not even understand the ‘true’ nature of these issues. A challenge for the minister, hence, is to bring in new decision-makers, who have a better understanding. How he addresses these issues will determine, to a great extent, how successful he will be in reversing the trend of the falling market share.