No. 62, January 2016
Constructing Theoretical Justifications to Suppress People’s Social Claims
Debroy Committee Report
Railways on Track for Privatization
Part II: Campaigner for privatisation
The latest, and brashest, exponent of the view that the Government lacks funds, and hence must turn to private finance, is the Bibek Debroy Committee on the Railways. The Committee submitted its final report in June 2015. Unusually, it contained no member of the Railway Board; of its eight members, only one had a Railways background (a retired financial commissioner of the Railways); others included a former corporate chief and a former managing director of the National Stock Exchange.
The Committee’s interim report, released in March 2015, unabashedly sang praises of privatization:
And so on, in this vein, for several more pages. This syrupy hymn to markets has been dropped in the final report, and the related matter now appears in an edited form as Chapter 7. Now both Debroy and the Railway Minister are at pains to clarify that they do not propose privatization; they are merely endorsing “private entry”. The report says:
However, this is mere sleight of words. The report chooses to define “privatization” very narrowly, to mean only sale of shares in the IR to private parties; this alone it does not recommend. In every other respect the report would like “private entry” – in the construction of infrastructure; manufacture of wagons; maintenance of locomotives; joint ventures with private firms for the development of land or other real estate owned by a Railway; contracts for operations and maintenance of a particular activity, or even an entire Railway; leasing of fixed assets to a contractor with freedom to decide all aspects, including staffing and management; and so on. The report even envisages private firms carrying out ticket sales, ticket inspection, and railway security. The form it prefers most is for the private firm to “have complete responsibility for procuring and operating a train or constructing and operating a physical infrastructure (such as terminal or laying of tracks), and financing necessary investment at its own risk,” but other forms devoid of risk to private capital too are welcomed. In brief, the B proposes that, while keeping the shell of the Railways in the public sector, more and more activities of the Railways should be run by the private sector.
In one sense Debroy and co. are correct: the policy of encouraging “private entry” is not new. The Government has been attempting since 1992 to attract private investment in wagons, container trains, special freight trains, automobile freight trains, private freight terminals, and dedicated freight corridors. But the response has been poor, presumably because the returns are not attractive enough in the available schemes. In August 2014, the Government permitted foreign direct investment (FDI) inconstruction, operation and maintenance of high speed train projects, dedicated freightlines, rolling stock, including train sets, signaling systems, and freight terminals.
However, says Debroy, “foreign investment will not come under the present scenario. It will come only if the Railway sector is reformed along the lines discussed in this Report and the change in incentives and structure as proposed in this Report are put in place. The Railway sector will then become worthy of foreign investmentin ancillary production units, terminals, signaling, logistics and the operation of trains.” (emphasis added) In other words, the purported objective of improving and expanding the Railways is now subordinated to the objective of becoming worthy of foreign investment; the ‘reforms’ are designed for the latter objective.
‘Reforming’ railway accounts – for private investors
And so the report recommends that the accounting system be changed to provide data as could reveal the profitability of different operations and routes/sections. Eventually, each activity could be organized as a separate profit centre, up to the level of a train. This would help private investors cherry-pick profitable activities in which to invest, or, alternatively, demand State subsidies for carrying out those activities.
The burden of the unprofitable, or less profitable, activities would of course remain with the public sector. A White Paper by IR in February 2015 estimated the social service obligation of the Railways (by carrying passengers and goods below cost) at Rs 25,000 crore. A Committee of Secretaries recommended reimbursement of this cost by the Government, but nothing has come of it. However, if any such activity is transferred to the private sector, the State will certainly wake up and provide “reimbursement”, i.e., subsidies.
Incidentally, if we accept the White Paper estimate of the Railways’ social service obligation, it means that there is virtually no net budgetary support from the Government for the Railways’ annual Plan. The 2015-16 Railway Budget projects Gross Budgetary Support at Rs 40,000 crore. However, in the same period, Railways are budgeted to pay the Government a ‘dividend’ of Rs 10,800 crore on earlier investments, and bear the above-mentioned social service obligation of Rs 25,000 crore, leaving a net support of just Rs 4,000 crore from the Government. This is to be set against a projected investment in 2015-16 of Rs 1,00,000 crore.
[Part III refutes the argument that the Government lacks the funds to invest in the Railways.]
 The official name is “Report of the Committee for Mobilization of Resources for Major Railway Projectsand Restructuring of Railway Ministry and Railway Board.”
 It does, however, recommend sale of IR shareholding in 13 IR undertakings – e.g., CONCOR, RITES, IRCTC, IRFC, etc.
 The White Paper does not explain how this calculation was made.
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