Debroy takes the hatchet to Railways

By Raghu
            The Report of the Bibek Debroy Committee for restructuring of Indian Railways (IR) has predictably recommended dismembering of IR and its privatization in all but name, preferring to call it “liberalization” instead. No doubt critiques of these recommendations will be dismissed by the BJP government and its corporate and other cheerleaders as knee-jerk reactions by the Left or from antiquated ideas of the Nehruvian-socialist era. The shoe is actually on the other foot. The Report’s prescriptions and their rationale are doctrinaire, formulaic neo-liberal prescriptions mistakenly blaming all ills on state ownership and holding up privatization as the cure for all ailments. This is clear from the Report ignoring the substantial evidence of disastrous outcomes from privatization of British Rail, and the vast experience with diverse rail transport models in Europe and elsewhere.
            The Report calls for full unbundling of IR, separating track construction and maintenance by IR from production of rolling stock, and operation of trains, both opened up to private parties. Several preparatory steps are to be taken over a five-year period. First is a shift to commercial accounting practices, ostensibly to unveil the true viability of operations including social costs of particular services or routes. Any subsidy required would be paid by the Government from the Union Budget rather than borne by IR. Second, an “independent” Regulator would supposedly ensure fair competition, and determine tariffs and infrastructure access fees to be paid by private train operators. Meanwhile, activities such as railway security as well as medical, educational and housing services for employees, would be hived off or outsourced. Again, if felt necessary, the Report suggests the State could subsidize education or medical care at private institutions, as it is increasingly doing for government and PSU employees at huge cost while undermining the public health and education systems. All these measures closely follow the neo-liberal play book: all expenditures on infrastructure to be incurred by the State, all consequently high profits go to private players.
             Whatever the claims in theory, experience in India has shown how this works in practice, for example in privatization of electricity distribution. The Regulator is anything but “independent”, mandated specifically to promote and support private distribution companies (discoms), and tilt the balance heavily in their favour. Spurious “commercial accounting” is notorious, especially for non-transparent deductions for infrastructure expenditures, but are accepted by regulators at face value for determining (usually high) tariffs. Discoms are scarcely accountable, regulators even disallowing CAG audits, and consumers are simply ignored as stakeholders, leaving the State to subsidize them if it wants (as the Delhi Government did). Private monopolies can be far worse than public ones!
There is no reason to believe this pattern will not repeat itself in privatization of IR.   Operating costs of private operators will always be shown as high, requiring escalating tariffs. Non-profitable routes will be mercilessly slashed regardless of social needs, and all infrastructure investments will be left to the State. When the dust settles on privatization, or liberalization if you prefer, users will have to pay much more, the State will end up with higher expenditures than in the “bad old days,” and private operators will laugh all the way to the bank!
            Lest anyone thinks this is a paranoid vision, let us look at privatization of British Rail, the role model for the Debroy Committee, as brought out by independent studies including some sponsored by the UK government.
            The autonomous state-owned corporation, Railtrack plc, set up in 1993 to manage infrastructure, collapsed in 2001 under the weight of high expenditure and poor recoveries from private train operators. Its successor, Network Rail, saw its debt burden rise from about £9,600 million in 2002-3 to about £30,000 million in 2012, with interest payments exceeding track maintenance expenses. Track access charges were continually lowered upon demands by the private operators, further reducing incomes. Following EU principles, the entire debt burden was later transferred to the State budget. Today UK taxpayers bear double the burden they did before privatization!
            2363 stations and 266 routes have been closed as unprofitable. On average, British fares are 30% higher than in continental Europe where many rail services such as in France and Germany are run by State-owned corporations which, incidentally, also operate more than half the rail services in the UK! As one wag put it, Thatcherite orthodoxy demands that the British State cannot operate rail services in the UK, but any other State can! Ironically, the only State-run rail service left in the UK, East Coast Rail, is among the most profitable, and the Conservative government is hell bent on privatizing it! A youguv poll showed 68% of UK citizens favouring the return of a nationalized British Rail.
            Admittedly there is a lot wrong with IR. But the Debroy Committee’s treatment, copying the failed British privatization model, is worse than the disease. Other European models could have been studied and even emulated, from services run by provincial governments to highly decentralized and unbundled yet state-run operations. The Modi government would do well to reject the Debroy Committee Report, but probably will not with an eye on cheers from the stock market and from foreign investors. That comes from looking upon the railways as an economic rather than public good, and from putting profits before people.