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.
