Discussion on ReportsAugust 2015

Rajnish KumarProfessor IT

National Academy of Indian Railways,

Vadodara

pit@nair.railnet.gov.in

NAIR

White Paper 2015

Railways, perhaps along with post offices, are the only two institutions in India with a deep network which if tapped judiciously can create substantial improvements in the hinterland.

Railways was always considered as a mode of transport in our country. We want to see the railways as the backbone of India's economic development.

- Hon'ble PM Shri Narendra Modi

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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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Then what is wrong?Why so many Reports?

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Reports

Most famous

Commonly known as Bibek Debroy Report6

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Important ReportsKakodkar Committee High Level Safety Review Committee 2012

Report of the Expert Group for Modernization of Indian Railways (Sam Pitroda, 2012)

Blueprint for Throughput enhancement on High Density Network Routes, 2007

Rakesh Mohan Railway_Report 2002

India Transport Report : Moving India to 2032 (2014)

Fast Track Committee on Loco Running Staff 2010

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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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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 BoardChairman

Member (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. 14

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Accounting ReformsLong term 24-48 months

LOB – Line of Business

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Gr A Service in IR

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Grouping of Employees

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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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NAIRInternational Railway Systems – Government Support

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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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INDIA TRANSPORT REPORT : MOVING INDIA TO 2032 (2014)

Transport Policy

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Moving INDIA to 2032National Transport Development Policy Committee (NTDPC)

Sector Report – RAILWAYS

Background

The Government of India set up a High Level National Transport Development Policy Committee (NTDPC) on 11 February 2010.

The main objective of setting up this Committee was to develop long term national transport policy (with a twenty year horizon) which facilitates overall growth and efficiency in the economy, while minimising energy use and effects on climate change.

http://planningcommission.nic.in/sectors/NTDPC/TOR_CabSec_NTDPC.pdf

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The Full Report(hyperlinks to the website)

India Transport Report : Moving India to 2032

Download Complete Reports : 

Volume I || Volume II || Volume III

India Transport Report : Moving India to 2032 (Chapter wise)

Published on 17th June 2014

A) VOLUME I : Executive Summary

B) VOLUME II: Main Report- Part I

Preface

NTDPC’s Approach to Transport Policy

Trends in Growth and Development of Transport

Macroeconomic Growth Backdrop: Transport Investment Requirements 2012-2032

Integrated Transport: Strategy and Logistics

Institutions for Transport System Governance

Regulatory Issues: An Overall Approach

Annexes to Preface

[ Download: Complete Part I ]

VOLUME II: Main Report- Part II

Energy and Environment

Transportation of Energy Commodities

Fiscal Issues

Potential of Information and Communication Technology to Enhance Transport Efficiency

Research and Human Resource Development

Safety

Promoting International Transport Connectivity Between India and the South and South East Asia Regions

[ Download: Complete Part II ]

C) VOLUME III: Sector Reports Part I

Railways

Roads and Road Transport

Civil Aviation

[ Download: Complete Part I ]

Sector Reports Part II

Ports and Shipping

Urban Transport

Transport Development in the North East

[ Download: Complete Part II ]36

Sector Report: RailwaysTABLE OF CONTENTS

INTRODUCTION - 3

CURRENT STATE OF INDIAN RAILWAYS - 7

INDIAN RAILWAYS: AN ASSESSMENT OF DEMAND AND GOALS FOR 2032 - 22

INVESTMENT REQUIREMENTS AND FINANCING PLAN - 29

MAJOR ISSUES CONFRONTING RAILWAYS - 39

INTERNATIONAL EXPERIENCE IN RAILWAY REFORM: LESSONS FOR INDIAN RAILWAYS - 75

ORGANISATIONAL REFORMS - 78

SUMMARY OF RECOMMENDATIONS - 92

ANNEXURE - 100

REFERENCES - 122

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Some issues

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Dominance of Road in Freight

The dominance of the road sector in freight transport in India is corroborated by two independent studies carried out by RITES and McKinsey. Both the studies estimate the share of Railways in freight transport in Net Tonne Kilometres (NTKMs) in India to be around 36 per cent

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IR’s share in originating tonnage

The RITES study also shows that over the years IR’s share (in originating tonnage) has come down from 89 per cent in 1951 to 30 per cent in 2007-08

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IR’s share in PKMs

A similar trend is observed in passenger transport, where the share of IR (in PKMs) has declined from 74.3 per cent in 1951 to 12.9 per cent in 2004-05, while the share of road has increased from 25.7 per cent to 86.7 per cent during the period

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Actual vs Optimal Modal Mix

RITES Total Transport System Study (TTSS) has estimated the total resource costs associated with different modes of transport.

The assessment of actual and optimal modal mix computed on the basis of thismethodology is summarized

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Staff Productivity Comparison

The much higher staff productivity in the US and Canada vis-à-vis India; China and Russia can be partly explained by the difference in overall freight and passenger mix, as the larger passenger volumes handled in India, China and Russia require a more labour-intensive service response than freight 43

International Comparison of Asset Productivity

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ORGANISATIONAL REFORMS

• Institutional separation of roles into policy, regulatory and management functions.

• NTDPC recommends the separation of Railways management and operations from the Government.

• The Ministry of Railways (or the unified Ministry of Transport) in the future should be limited to setting policies

• A new Railways Regulatory Authority would be responsible for overall regulation, including the setting of tariffs;

• The Indian Railways Corporation (IRC) to be set up as a statutory corporation, which would retain many of the quasi governmental powers endowed to the Railways under the current Act.

• Existing railways corporations such as CONCOR, DFCCIL, and the like will become subsidiaries or joint ventures of the IRC.

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NTDPC endorses Rakesh Mohan Committee Recommendations

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RESEARCH AND DEVELOPMENT (R&D)

• Establish Railway Research and Development Council (RRDC), an apex body that will replace the Governing Council and will be chaired by an eminent technologist/scientist, with the Chairman and Technical Members of the Railway Board as its members

• Establish Railway Research and Development Institute (RRDI), a multidisciplinary research organisation for applied research on current concerns and future technology development for Railways.

• It should target recruiting close to 300 researcher professionals by the end of the 13th Plan, with a healthy mix of Ph.D. degree holders, engineers, architects, professors from national and international universities etc.

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The Report says……

The massive capacity expansion, as envisaged, will not take place in a business as usual scenario.

Hence it is of the utmost importance that a vision similar to that of NHDP (National Highways Development Project) is laid down for railways so that we may expect a transformed railway network by 2032.

This will have to be supported by

(a) the required organizational changes, and

(b) certain strategic decisions in terms of the relative allocation of resources between rail and road.

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The Rail Route to higher growth

Economic Survey 2014-15Two Volumes

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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. 55

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

BACKWARDRailways are found to posses strong backward linkages (demand pull from other sectors) with manufacturing and services Based on 2007-08 data (the latest year for which the input-output tables are available), 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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NAIR

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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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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हम सब मिमलकर रल क� बहतर बना�यें�Let us make Railways better

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