MEGA CHURNS, NEXT 2500 DAYS


V Pattabhi Ram

This is piece that I wrote in mid 2013 for a Internet site. They DIDN’T publish it.

In 1991, an unlikely pair, comprising a semi-retired politician (Mr. Narasimha Rao) and a superannuated bureaucrat (Dr. Manmohan Singh) teamed up to end India’s marriage to socialism and begin her dalliance with market economy. Over the next 15 years India’s economic transition has turned into a global case study in managing change. But since then the pace has slowed and there is the genuine fear that we might slip into a bottomless pit.

There are 5 mega churns that any Indian government needs to do across the next 2,500 days, if we are to shift gears race into the 3rd generation of reforms. The next 2,500 days are important because at the end of it India would have been married to market economy for 30 years; and 30 years is a long time even in the life of a nation.

MEGA CHURN 1: Railways

The national government owns the skies, the seas, the roads and the rails. The sky is now available to private players to run airlines. Ditto about the seas and roads, where private operators can ply ships and buses. There is no reason why it should be otherwise for the railways.  Yes, it is time that the government seriously looked at part privatizing our Railways. This should be the first major churn. The money can be partly used to modernize our Railways and partly used to arrest our fiscal deficit.

Let me explain the background and the way forward.

India established its Railways in 1853, a good 24 years ahead of China. By 1947, India had 53,400 km of rail network compared to China’s 27,000 km. In other words, Chinese railway was 50% the size of Indian railway. By 2010, India’s network had expanded to 64,000 km. In contrast, China’s network was almost 100,000 km. Said differently, China is now 50% ahead of India. That’s the classic case of the tortoise racing ahead of the hare.

Here are a few more statistics to confirm that the Indian railways has been a sad performer.

China carries five times more freight tonnage than India. Its freight carriers clock 120 kmph against our 26 kmph. China’s passenger trains run at 200 kmph. India’s “super fast express” manage an average speed of 60 kmph!  China is now constructing ‘350 kmph’ passenger dedicated lines (PDLs). This will touch 16,000 route kms by 2020 from the present 2,000.

India is nowhere in the race. To catch up, the Railways need to improve efficiency and invest heavily. We need bullet trains that would run at 350 km/hr. We need to add more rail roads. But where will the money come from? In a country where FDI is a dirty abbreviation, privatization is one route. In fact it and it alone would harness innovation, bring investment and unleash the entrepreneurial spirit.  This is where I am coming from. Privatize, privatize, privatize.

Let’s again look to China for inspiration.

The Chinese Railways are organized professionally. The business is broken into five major railway corporations each handling a certain function. Each is autonomous, although state-owned. A number of passenger and freight companies have been created to operate on a competitive basis. In 2005, China opted for public-private partnerships for new constructions. These have increased operational efficiencies.

Slack on the track

If we don’t modernize fast, we will quickly become a basket case. Look at these for starters.

  • Our operating ratio for the current fiscal (2012-13) is 88.8 %, whereas it is 75% for Chinese Railways.  Part privatization with its focus on cost efficiencies will push the Railways out of its slumber.
  • Our revenue per passenger km is just 22% of revenue per tonne km. In contrast commuters in China, Korea and France pay 1.2 – 1.4 times more than those who move cargo by rail. Part privatization will take pricing to its correct levels.
  • Our network capacity and infrastructure is plain inadequate. We carry 6.2billion passengers every year, yet since 1950-51, our route-kilometres have increased by just 18%. Our freight and passenger output has gone up by nearly 12 times. The magic of private ownership alone can turn railways into gold.

Way Forward

It’s time for the elephant called Indian Railways to dance.

  • We need big ticket investments. We need bullet trains that run at 350 km/h that would ease our air traffic. Such trains were contemplated as far back as 25 years ago.
  • In 1987, it was estimated to cost Rs 490 lac per km, for a line dedicated to run 300 km/h trains. Some estimates place today’s number between Rs 7,000 and Rs 10000 lac (a k a 100 Cr) per km. At that higher end, the Chennai-Bangalore route of 330 kms will cost Rs 33,000 crore. Some back of the envelope calculations suggest that to profit, passengers should be charged Rs 5 per km; in this case Rs 1,650/-. This is about $33 or $0.10 per km, which is on par with pricing in the US. That for sure is par on course, as you would reach Bangalore city in 75-minutes flat. Contrast this with a 1st A/c price on the Shatapdi and you notice that this is only about 70% more.
  • In three years, China has invested nearly 14 lakh crore into its railways. India’s annual capital expenditure is 1/20th of that amount! The only way to bring the money is to privatize atleast the segment relating to bullet trains to begin with.  And at the next level get FDI
  • We must adopt differential pricing. Peak hour rates have to be different from the non-peak hour rates. The lower berth must be priced higher than the upper berth.
  • The Railways is sitting on 43,000 hectares of vacant land whose current market value is Rs.22 lakh crore. Its time to look at converting that into cash.
  • To the private investors look at providing tax breaks. Look at naming stations after the funding corporate. Look at placing advertisements inside and outside the bullet trains.

When they departed from this country, the Englishmen left behind three things: the game of cricket, the English language and the Railways. We have taken cricket to a new level. The English speaking nature of our population is a huge plus in the global market place of business. It’s the Railways that have been left to rot. And it should not be so.

 

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About Pattabhi Ram

A chartered accountant by profession, a writer by passion and a teacher by accidental choice.
This entry was posted in Unpublished Gems and tagged . Bookmark the permalink.

4 Responses to MEGA CHURNS, NEXT 2500 DAYS

  1. Dilna says:

    I just love reading your articles sir…its like everyday i frantically search for one of your racy cases to begin my day with…..:)

  2. Sathiya Narayanan. R says:

    Arumai Sir!

  3. Sathiya Narayanan. R says:

    Just one question Sir, how about the impact on ” welfare state” objective given that Railways caters to a large section of low income and middle class population? Shoul there be a balanced approach in the long-term?

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