Railways minister Suresh Prabhu has been given the challenging task to transform Indian Railways.
Economist Bibek Debroy chaired a committee to reconfigure the Railway Board as well as to suggest steps for resource mobilisation for major projects. The committee’s interim report is awaited.
In the meantime, the World Bank made a presentation to Prabhu outlining the experience of other countries in transforming their railway systems. It recommended that the Indian Railways be reconfigured along separate businesses and do away with the departmental structure. It was, however, constrained in the range of recommendations it put forward, since the Prime Minister had declared no change in ownership can take place.
So, the World Bank came up with anovel recommendation: of periodically having the Railway Board reviewed by a ‘supervisory board’. Apart from the Railway Board chairman, other members would be drawn from business, banking, and academia — but none from the government or political class.
The Acworth Committee had made a similar recommendation in 1923. But the government of the day scuttled the ability of the committee to function independently by filling it from within the government.
Even if a supervisory board is constituted, its ability to influence the functioning of the railways will be limited by the fact that it won’t be able to review the performance of the railway minister.
The railway minister wears two hats: a political one, and as head of one of the largest commercial organisations in the world. While Parliament is the correct forum for the review of the politician, for the Indian Railways ‘CEO’, a supervisory board would be the right forum.
There is another fly in the ointment. A commercial organisation is a department of the government subject to all government rules. Moreover, the officer cadre that manages the Indian Railways is the civil service with promotional and other incentive systems identical to other central services. Such a system works in accordance with the rules, at its own pace. Everything is time-bound.
Moreover, the Railway Board is not a board of a commercial organisation but an operational one. The seven members manage the railways on a day-to-day basis where each functional member is supreme in his area and the chairman arbitrates when two or more functions are involved. This arrangement remains effective and it manages to run 14,300 trains daily in very challenging conditions.
Even as it is a department of the government, the railways remains acommercial enterprise. The government can’t escape taking decisions as shareholder and as board of directors. Parliament performs the function of shareholders, approving the budget and laying down what it can and can’t do.
Similarly, the Union Cabinet performs the role of the board of directors, since it makes all the top appointments, and any decisions regarding fare structure and other policy issues. However, neither Parliament nor the Cabinet thinks of itself as shareholders or board of directors. Across both fora is the railway minister, performing the function of a managing director.
Over the years, railway ministers have used funds for political commitments at the cost of commercial viability. Suresh Prabhu has a choice before him. Does he to want take on the mantle of managing director of Indian Railways? The answer will determine which way the train rolls.
If he decides to be a managing director, he can send out a signal this Thursday by tailoring part of his Budget speech to be that of a company CEO presenting the year’s performance to its shareholders. Prabhu can also revive the stalled project to reform the railways’ accounting system, which will enable that the Indian Railways’ performance is seen in commercial terms.
He needs to set a target for increasing market share in goods movement and identify the target customers for shifting on to rail. For that, an understanding of what the customer considers of value — and creating that value by innovation and investment — is required
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