Options for reforms in Indian Railways

The embarrassment over Railway Minister Pawan Kumar Bansal resigning amidst charges of his relatives having received bribe for ‘managing’ a top posting may be very uncomfortable for the government, but the existence of corruption in the largest public sector organisation is a phenomenon well established by a series of massive exposés over the years.

Recently, the Chinese government dismantled its railway ministry with the aim of improving efficiency and rooting out corruption. That raises the inevitable question: would such a move help the Indian Railways fight corruption too?

Corruption had been a major issue in China, with a senior functionary connected to the bullet train network being removed from office two years ago on charges of bribery. Another official of the Chinese railways was said to have bought a house in Los Angeles for $8,60,000, though his monthly salary was a few hundred dollars.

As in India, the Chinese railways was a mammoth organisation with 2.1 million people employed for its 80,000-km track. The Indian Railways employs 1.4 million people for its 63,300-km track. Even as its finances are in dire need of revival — the gross traffic receipts fell short of the target of Rs 1,32,552 crore by Rs 6,872 crore — there is no dearth of money to be made on the sly, to which the focus has now shifted following the crores-for-plum-post case.

For votes, they won’t raise fares

The railways operating ratio, or working expenses as a ratio of traffic receipts, deteriorated from 75.9 per cent in 2007-08 (when Lalu Prasad was the Railway Minister) to 94.7 per cent in 2009-10 (when Mamata Banerjee was the minister) before improving to 88.8 per cent in 2012-13. But there is little that the minister or officials at Rail Bhavan have done over the years to improve the health of the Railways.

A mere 13,000-km of rail line has been added in the 66 years since Independence while ministers over the years have used the organisation as a political tool to keep their constituency happy.

The penchant of every Railway Minister to announce a slew of new trains has put so much pressure on the organisation that it is bursting at its seams with no solution in sight. The perception is that those concerned — whether serving boys on trains, ticket checkers or members of the Railway Board — are only interested in making money, rather than improving the health of the Railways, which pays Rs 20,000 crore in pensions. This amount is more than 60 per cent of its passenger earnings of Rs 32,500 crore for 2012-13.

Ministers are reluctant to raise passenger fares. Instead, they keep increasing freight rates to fill the coffers.

As a result, passenger fares in India are among the lowest in the world, and the freight rates are among the highest, leading to people transporting their goods by road rather than rail. Roads account for 57 per cent of the freight traffic in the country, much higher than the US (44 per cent) and China (22 per cent).

India, according to a World Bank report, has much more passenger service than freight, which constrains productivity, raises cost and invites political interference in operations and pricing.

Reaching new heights, only in corruption

The Central Vigilance Commission (CVC) also sees the Railways as the most corrupt government organisation in the country. In its 2011 annual report, the CVC stated that the Railways topped the list of government organisations, with the maximum number of complaints of corruption lodged. Of course, that will also have to do with it being the largest employer.

In that year alone, the CVC received over 8,800 complaints of graft against railway employees — 500 more than the 8,330 in 2010. The 2010 figure had registered an 80 per cent increase over the preceding year.

The 2010 CVC report reveals that every third official penalised for corruption in the country belonged to the Railways. Out of the 2,982 officials who faced action in 2010, as many as 911 were from the Railways. In fact, the corruption index in the Railways has doubled since 2009, when 509 officials had faced the heat for corruption following the recommendation of the CVC.

The CBI has also exposed numerous cases of corruption by railway staff, the one involving Bansal’s nephew only being the latest. Among the cases that came to light were that of AK Bora, then Chairman of the Railway Recruitment Board, Northeast Frontier Railway, Guwahati (recruitment scam); and Vinayak Ramchandra Shewale, then station master of Byculla in Mumbai (was sentenced to two-year rigorous imprisonment and fined Rs 4,000 for demanding Rs 2,100 from a person to sell juice) at Byculla station.

In December 2012, Arvind Vijeta Mittal, then senior divisional engineer, Central Railway, was sentenced to three-year rigorous imprisonment and fined Rs 75,000 for amassing assets disproportionate to his known sources of income.

In October 2012, the CBI arrested a sub-inspector of the Railway Protection Force at Satna in Madhya Pradesh for accepting a bribe of Rs 2 lakh from a scrap vendor. He had allegedly demanded a bribe of Rs 10 lakh from the complainant for not implicating him in a theft case.

In August 2012, the CBI arrested a senior divisional engineer of South Western Railway at Hubli in Karnataka for accepting Rs 1.10 lakh from a contractor for passing a bill. The list has many more names.

Curtains to dispensers, there’s money in all

Officials say crores of rupees are gifted to vendors by the Railways, which lets them charge exorbitant rates for curtains and hundreds of other items that it buys every year — all this for the kickbacks they receive.

Atul Kumar, a railway store service official, had written to the then Railway Minister, Mamata Banerjee, detailing the modus operandi for the leakage of around Rs 5,000 crore each year. But his letter was not acknowledged.

“The Railways buys stuff from pre-approved vendors. After getting approved, the vendors take advantage and form cartels and quote exorbitant prices. They dictate prices and this is known to all. But due to the large kickbacks involved, or perhaps bureaucratic apathy, nothing fruitful is done,” Atul Kumar had said in his letter.

What is even more disconcerting about the cartels is that the Railways itself first breeds the cartels, and then the cartels bleed the organisation.

Atul Kumar had came out with startling ‘facts’. In the case of fragrance dispensers installed in AC 2-tier coaches and toilets in 2005, the Railways Research Design and Standards Organisation (RDSO) told the management to install a specific brand of odour-control system in trains. The brands were ‘Auto Janitor’ and ‘Microburst’ produced by a UK-based company and supplied by only three suppliers from Mumbai.

One of the companies imported the dispensers for Rs 415 each and sold them to the Railways for Rs 4,600 a piece. The dispenser refills were imported for Rs 226 and sold to the Railways for Rs 1,300 each.

Moreover, the Railways cut out competition by making specifications match a particular brand, leading to high pricing when similar locally made dispensers were available for about Rs 700 each.

Also in the case of side-bearer pads, which cost Rs 300 each in 2007, specifications were changed to benefit vested interests. By the end of 2008, they were sold to the Railways at Rs 4,160 each — 14 times the original cost.

Officials say every year the Railways buys goods worth around Rs 20,000 crore. The overpricing is by about 30 per cent, which goes from the exchequer into the pocket of the officials. Money can be made in all departments in the Railways. In 2004, a CAG report said the Railway Board undertook no independent cost analysis when a new product replaced an old one. Select firms approved to supply the new product ganged up, started quoting exorbitant prices, and made a killing.

Sources say not only do suppliers fix prices among themselves, but also find ways to fix the introduction of new modifications in collusion with the Railway Board and RDSO officials.

World experiments with privatisation

Analysts say like most PSUs, the Railways, too, has become a liability for the government. Its annual loss is a whopping Rs 27,000 crore. By privatising the Railways, India can turn the world’s third-largest rail network into a profitable entity, they claim. Japan, the US, UK and Argentina have shown the way, and China is the latest. Before privatisation, Argentina was losing more than $1 billion a year.

China’s state railways administration, to be supervised by the ministry of transport, will take up the existing administrative functions of the railway ministry, while a private entity, China Railway Corporation, will carry out the commercial functions of the railway ministry.

Experts say India can also draw up a model that works best for the Railways and implement reforms by seeking international expertise.

Though privatisation may lead to increase in travel costs, the money collected from the higher passenger classes can be used to subsidise travel in the general compartments. The government cannot wait any longer to improve the health of the terminally-ill behemoth. And this scam has given it the chance to start the clean-up process.

http://www.tribuneindia.com/2013/20130512/pers.htm

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