Book review – Bankruptcy to Billions ..How the Indian Railways Transformed

This is a really timely book given the renewed focus on state of Indian railways.

It is written by an interesting combo of IAS Sudhir Mishra and Shagun Mehrotra of New School University  (Shagun wrote this book as part of his PhD thesis which is really amazing).

The book is focused on how Railways reformed itself from 2001 crisis. In 2000-01, Railways defaulted on its dividend payment to GoI and cash balance was a mere 359 Cr. The operating ratio (operating expenses/operating revenue) peaked to 98% indicating clear and near bankruptcy.

After the 2004 elections, a populist govt was elected and end was just near. What transpired was just unbelievable. By 2008, Op Ratio improved to 78 and cash balances surged to Rs 25,000 Cr. Moreover. all this was done ignoring the standard wisdom of LPG – liberalise, privatise and globalise. Instead, the railways did just the opposite and still came up trumps.

A committee was formed under Rakesh Mohan to look at railways. The committee suggested:

  • Raise prices
  • Privatise/Corporatise
  • retrenchment of labor
  • regulator for setting tariffs

What actually happened?

  • Lower Prices
  • No privatisation
  • Increase of labor
  • No such regulator needed

 

The book has an excellent discussion on political economy of reforms. It divides the reforms into 2*2 matrix on politically desirable/undesirable and Commercially viable/unviable categories. Only those in political desirable/commercial viable are win win like increasing the number of coaches per train. The other three combinations do not work out because of either one or both situations not workable.

The authors suggest on a careful analysis only 20% of reforms were into a complete no-no case (like rise in tariffs for 2nd class) and rest 80% were doable (like rise in freights, AC fares). The book also has this interesting discussion on railway freights. Till date, Railways  used to charge more for steel than iron. In iron railways provided door to door service whreas in steel it was station to station. In former, railways had a near monopoly as no one else could really provide the services but in latter competition came from road. So prices should be higher in iron than steel. Just addressing this anomaly backed by rising commodity prices led to much higher freights as well.

The book also says that Railways is not really a monopoly as suggested by the experts. It competes with road and air for various services.

The book has many tables and charts carefully segmenting Railways finances into sections and sub-sections. It gives you a great picture of how things got revived through indigenous thinking and not really relying on the expert advice. The profitability of railways had to be seen  without compromising its social agenda.

In sum, railways managed this transition in three words- running “faster, heavier and longer” trains. It was that simple actually. Read the book for more details.

It will be interesting to read what authors have to say now as Railways are again struggling. Can we have similar kinds of things going on today as well? Middle class is already struggling with soaring travel costs. Train ticket prices are only expected to  rise going ahead based on prevailing wisdom.  Railways was the only way one could travel anyways which is also becoming an increased concern nowadays..

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