Monday, July 18, 2016

WELL DONE, NITISH KUMAR!

FROM BUSINESS WORLD OF 3 APRIL 2007


Railways in competition


One of the facets of the railway budget that attracted little interest is the freight policy that was issued with it. Normally, the railway budget is an even more boring document than the central budget; being its little brother, it is presented a couple of days before, and is forgotten as long as the finance minister gives his budget speech. And so it was this year as well. Everyone admits that Lalu Prasad Yadav has done wonders with the railways; but in view of his previous career as an acquisitive politician, his achievement is taken to be miraculous rather than the result of sweat and tears.
Skeptics would find the freight policy especially surprising. It is not the usual mindless official document; it reflects serious deliberation on the changed fortunes of the railways and what they need to do to survive in the new competitive world.
A succession of railway ministers has given concessions to passengers; as a result, passenger services make a loss. The railways try to make up for the loss by charging exorbitant fares on the higher classes. As a result, better-off passengers have forsaken the railways in hordes. The danger has greatly increased in the past five years with the coming of cut-price airlines. Their fares are generally lower than higher-class railway fares. This is the first front on which the railways face competition, and Lalu responded this year by cutting higher fares – not much, not enough, but at least there was recognition of competition.
Since passenger services lose money, the railways have to make up by making a profit on freight traffic. Normally they should have no difficulty in doing so, because their carriage costs are a fraction of those of road transport. But since the nationalizations of the 1950s and 1970s, the central government has substantially owned industries that originate bulk traffic, especially coal, oil and steel; and the state governments owned the electric power industry which is the principal consumer of coal. So it forced the railways to charge these industries low freight. They were compelled to raise freight charges for higher-value non-bulk traffic from the private sector; all this traffic was lured away by the road transport industry, which was one of the fastest growing industries well into the 1990s.
So when Nitish Kumar took over, he found the railways in dire straits. He was the first minister to bring intelligence to bear on the railways’ problems. Principally, he impressed upon the railways the necessity to match the freight charges of road transport, and to be sensitive to the convenience of customers. He, for instance, pointed out the folly of refusing wagons to a customer because he could not provide return traffic for empty wagons; it was the railways’ job to find return traffic.
The ideas he put forward have now been developed into a number of principles. The railways used originally to charge the same freight per kilometer irrespective of location, and to vary it according to the value of the cargo. They modified this rule in various ways to gain traffic, and now they are trying to systematize the modifications.
The first major modification is capacity-based variation. If wagons are traveling empty in any direction, freight on them will be charged less; and conversely, if a certain route is congested, charges on it will be raised. Concessional rates will be charged in the lean season.
The second and more important change is building long-term relationships with bulk clients, especially those who propose to set up new industrial plants. Finding the railways unreliable, factory owners had opted wholesale for trucks. Now the railways will be prepared to take a line to the factory and enter into a long-term contract to carry its production.
The third change is to offer freight rates that are independent of the railways’ commodity classification to attract high-value traffic. The railways are still too obsessed with commodities, so this initiative did not work; but they plan to ‘tweak’ it.

The freight policy still carries a baggage of old practices, for example in the punitive demurrage and wharfage charges, levied if wagons are not emptied within a few hours. Despite this, it displays a very encouraging bit of fresh thinking; it is far in advance of general government practice. It is to be hoped that those who initiated freight reforms will stay in harness long enough to turn railways into an entirely customer-oriented enterprise.