Thursday, September 11, 2014

INDIAN RAILWAYS AS A CONTRIBUTOR OF ECONOMY



INDIAN RAILWAYS AS A CONTRIBUTOR OF ECONOMY
UDAY SHANKAR JHA


Indian Railways (IR) is both a contributor and product of Indian Economy. It has been shaped by the need of economy during British period, when there was no major source of transportation. Even the condition of road was not well developed during that period.  From a very modest beginning in 1853, when the first train steamed off from Mumbai to Thane, a distance of 34 kilometres Indian Railways have grown into a vast network of 7,083 stations spread over a route length of 63,974 kilometres with a fleet of 8,889 locomotives, 51,030 passenger service vehicles, 6,505 other coaching vehicles and 2, 19,931 wagons as on 31st March, 2011. The growth of Indian Railways in the 158 years of its existence is thus phenomenal. It has played a vital role in the economic, industrial and social development of the country. The IR has been a good integrating force. It is most convenient mode of transport for long distance and is most suitable for carrying heavy and bulky goods like coal, iron ore, iron and steel, other minerals, fertilizers, food grains, cement etc. It carries raw materials from different mines and quarries and other interior areas of the country to the industrial centers and back to the market. These days it also plays important role in connecting port and hinterland. It links up various regions of economy and increases spatial mobility of people. Thus the IR plays a crucial role in economic development.
The Theoretical Analysis of IR
The basic functioning of IR can be evaluated on the prism of general equilibrium theory. This theory specifies the conditions under which the decisions of utility maximizing consumers and profit maximizing firms will lead to the inevitable, spontaneous establishment of equilibrium in all markets simultaneously. This is established only when competitive forces led to the equality of marginal benefit and marginal cost in the market for every single commodity and service. There is a direct link between general equilibrium theory and welfare economies.
Thus, general equilibrium is both productively, as well as allocation wise efficient. From a consumer’s point of view, the proper functioning of market is beneficial. However if the conditions of competitions are not attained, it is possible for conditions of general equilibrium to hold. There are four conditions under which the market fails. They are – (a) monopoly and market power (b) externalities (c) public goods, and (d) severe informational asymmetries.  These all condition exists in case of infrastructure facilities, particularly in railways in India. In this perspective the development of railways in India has not been on the line of the competitive demand and supply theory. Rather it has been developed as monopoly of state, or as ‘natural monopoly’ as it was felt that the growth could be more balanced and equitable if the railways function under single organization due to economies of scale.
Growth during British Era and Post Independent Era
Once the IR was accepted as ‘natural monopoly’ and got total government support that it made a very robust growth. From 39603 KM in 1900, it had gone up to 61232 KM in 1925 (This included railways lines of present day Pakistan and Bangladesh). At the present time the situation has changed drastically. In terms of route KM it has increased marginally from 54376 KM in 1947 to 63974 KM in 2009-10. Investment on IR no longer occupies a position of budgetary preponderance as in the pre-independence period.  While the government expenditure on railways as a percentage of total public investment stood at 53.7% and 58.3% respectively in the period 1860-1918 and 1919-1946, according to 8th plan it stood at 6.1%. During 9th and 10th plan it went down further to 5.7% and 5.5 % respectively. During 11th plan (2007-2012) it is likely to be somewhere around 5%. (The transport sector allocation during 11th plan is Rs 572443 crore).This kind of restrictive availability of fund for development has resulted in stunted growth of IR as illustrated in the following table: -

Table No. 1 Growth of Railways and Roadways

Year
Population
(Crore)
GDP
(000 crore)
(At current Price)
Railways
Roadways
Route
Length
(KM)
No. of
Coaches
No. of
Wagon
Length of
Roads
(000
KM)
No. of Goods
Vehicle
(000)
No. of
Buses
(000)
1950-51
36.1
9.72
53596
19628
205596
400
82
34
1960-61
43.9
16.51
56247
28439
307907
525
168
57
1970-71
54.8
4.30
59709
35145
383990
915
343
94
1980-81
68.3
13.25
61240
38333
400946
1485
554
162
1990-91
84.6
51.50
62367
38511
346102
2327
1356
331
2000-01
102.7
192.50
63028
42675
222193
3374
2948
634
2006-07
112.2
395.22
63300
51210
216638
4141
-
-
2007-08
113.8
458.14
63300
53310
215554
4326
-
-
2008-09
115.4
528.21
63611
54330
212835
-
-
-
2009-10
117.0
613.32
63974
56826
219931
-
-
-
Source: Economic Survey 2011-12. Table No. 0.1, 1.26, 1.27A. 1.28
It is clear from the above table that between 1950-51 and 2009-10 there has been three and half time increase in the population, five time increase in the GDP, seven time increase in the length of road, fifty eight time increase in the number of trucks, and twenty eight time increase in the number of buses.  But in IR the growth has been abysmally low. In absence of proper financing and lack of capital IR’s route length has increased only 1.18 time, number of coaches increased only 2.35 time and number of wagons increased only 1.11 time. Now, when population is growing and economic activities are growing, particularly in last 10 years, it is not possible to retain the same customer base. Although the IR has improved its productivity in absolute term as shown in the following table its market share has declined as shown earlier

Table No. 2 Growth of Railways

Year   a
Originating Traffic
(Million Tonnes)
Goods Carried
(Billion tonne-KM)
Goods Earning
(` . Crore)
Originating
 Passenger
(Million)
Passenger
Kilometers
(Billion)
Passenger
Earning
(`. Crore)
1950-51
93
44
139
1284
67
98
1960-61
156
88
281
1594
78
132
1970-71
197
127
601
2431
118
296
1980-81
220
159
1551
3613
209
828
1990-91
341
243
8247
3858
296
3145
2000-01
504
316
23045
4833
457
10515
2005-06
682
442
35535
5725
616
15126
2006-07
745
483
41073
6219
695
17224
2007-08
804
523
46426
6524
770
19844
2008-09
837
552
51749
6920
838
21931
2009-10
892
601
56937
7246
904
23488
Source: Economic Survey 2011-12. Table No. 1.26,

The reducing market indicates the IR needs to do serious thinking about its continuance in future. It is not that, the IR has not identified all bottleneck points, which have been affecting its performance. These bottleneck points may exist either in its rule or in its operating practices. This leads to idling of its stock on the one hand and unmet demands on the other hands. Although IR is gradually doing, proper managerial approach with goal of optimization of loading and earning to resolve such bottleneck is required. But then there is a limit and such measures now can help only in having some marginal increase in its productivity. Undoubtedly, IR now badly needs surplus capacity generation to attract to retain its customer base and to attract or win back those customers who have moved out of its fold. As shown in the Table No. 2 that there has been massive increase in the number of trucks, buses and road length. Roadways are always ready to provide customized and personalized services to the customers on demand and with different kind of guarantees. Due to this, as shown in the Table No.1, the share of road traffic has grown phenomenally. For the IR, it has not been possible to cater its all present and potential customers, despite having very heavy demand, as per their needs as there is always shortage of wagon and passenger coaches in most of the months, particularly in peak seasons, which are, nowadays, more than six months a year. Due to this these customers move to roadways for meeting their demand despite paying higher charges and lot more inconveniences. The kind of budgetary support, which IR gets from the Government of India and the kind of surplus IR has been able to generate, are far from meeting the developmental requirement.  The following table no. 3 gives the detail of budgetary support received from the Government of India.

Table No.3 Plan Outlay by Internal Generation & GOI Support

Plan
Year
Total Plan
Outlay
Internal
Generation
of  IR
% Share of
Railways Budget
Govt. of India support
(`. Crore)
% of  Govt. of India Budget
First Plan
1951-56
422
280
66.4
142
10.3
Second Plan
1956-61
1043
467
44.8
576
10.3
Third Plan
1961-66
1685
545
32.2
1140
10.3
Annual Plan
1966-69
762
320
42
458
10.3
Fourth Plan
1969-74
1428
397
27.8
1031
10.3
Fifth Plan
1974-79
1525
384
25.2
1141
5.3
Annual Plan
1979-80
1251
316
25.0
766
6
Sixth Plan
1980-85
6585
2783
42.3
6587
6.1
Seventh Plan
1985-90
16549
7089
42.8
16549
7.6
Annual Plan
1990-91
-
-
-
4892
8.4
Annual Plan
1991-92
-
-
-
5393
8.3
Eight Plan
1992-97
32306
18832
58.3
7313
6.3
Ninth Plan
1997-02
46405
16352
35.2
15472
5.3
Tenth Plan
2002-07
-
-
-
64709
5.5
Eleventh Plan
2007-12
-
-
-
572443
Trans. sector

Source: Economic Survey 2010-11. Table No. 2.4 to 2.10 and Status Paper 2002 and Raghuram (2002)

Thus, we find that after independence, IR has not got sufficient fund for the proper development. Since the government decides the different rates, particularly the passenger fare it has not been possible to generate more funds by raising freight or fare in a rational manner. The budgetary support, whatever the IR has got from the Government of India, remained to be a paltry sum to meet some minor requirements. This kind of situation demands some serious deliberation on the budgetary support received by the IR from the government of India. Since India has adopted planned economy after independence, it would be prudential to see plan wise growth and development of the IR.
Plan Development: First & Second Plan
According to Mishra S. K. & Puri V. K. (2010. pp92-96) at the time of Independence, the IR was under severe strain as an important part of railways was divided between India and Pakistan, including track coaches wagons and locomotives. Hence the First Plan (1951-56) was devoted mainly to the rehabilitation and modernization of rolling stock and of fixed assets. On account of the heavy replacement demands, the need for expansion could not be fully met in the First Plan. Hence during this plan nothing new was done and attempt was to improve the existing stock. The Second Plan (1956-61) had a mix plan. Along with substantial provision for rehabilitation of aged assets, the emphasis in this plan, shifted to the programmes required to augment line capacity on different sections of the railways and to the procurement of additional rolling stock to meet the growing demand for railway transport arising from the increased production in the agriculture and industrial sectors of the economy. Hence the second plan was the first attempt in the expansion mode. With improving industrial and agricultural production the demand of transportation was increasing in massive proportion and the condition of road was not so good to cater this need
Third & Fourth Plan
Third Plan (1961-66) envisaged a rapid expansion of railways due to their importance of industrial programmes (particularly, the carrying of heavy goods like coal, iron ore and other material for the steel plants, etc). It was also recognized that in view of the difficulties of coping with anticipated increase in traffic with steam traction in the regions where the coal fields and the new steel plants are situated, electrification and dieselization had become an operational necessity.  Provision was accordingly made for the electrification of a number of sections on the Eastern, South-Eastern, Central and Southern Railways. The basic objective of the Fourth Plan (1969-74) for the railways was to provide in full for the increase in traffic expected, to modernize the railways equipment and practice within the limits of the funds available and to convert 1,676 km. of meter gauge to broad gauge in areas of rapid economic development and high traffic potential. The expenditure on rolling stock, track renewals and the line capacity works constituted about 70 per cent of the expenditure on railways in the Fourth Plan. Up to Fourth plan the IR got 10.3% budgetary support from the government of India. But after this, support started decreasing. Initially it was slow. Later support started decreasing rapidly.
The Fifth to Eight Plan
The Fifth Plan (1974-79) recognized the important role that railways had to perform in developing the transportation systems in the economy and provided for an outlay of `. 2,350 crore of which around 68 per cent was to be for rolling stock, track renewals and line capacity works. The Sixth Plan (1980-85) kept an outlay of `5,100 crore for railways of which ` 2,100 crore was to be for rolling stock and ` 500 crore for track renewals.  The actual expenditure in the Sixth Plan was around `6,585 crore. The budgetary support from the government of India during fifth and sixth plan was 5.3% and 6.1% respectively. However this increased during seventh plan when the support increased to 7.6%. Thus the railways recorded an excellent performance during the Seventh Plan (1985-90) in terms of additional transport effort, rehabilitation of the system, financial performance, and better productivity, technological up gradation, modernization and industrial relations. The main thrust in the Eighth Plan (1992-97) for railways was on capacity generation. Some other aspects which received special attention during the Eighth Plan were rehabilitation, modernization, energy conservation, manpower planning, financial viability, safety and customer satisfaction through better quality of services.
Journey so Far
When we evaluate the performance of the IR up to this period .i.e. during the planning period covered by the first eight five year plans (the period from 1950-51 to 1996-97) the passenger output  measured in terms of non-suburban passenger kilometres increased by 5.4 times and the freight transport measured in terms of net tonne kilometer increased by 6.3 times. However, in this period the network had grown by only 1.17 times in terms of route kilometres and 1.36 times in terms of track kilometres. Other inputs, such as wagons, coaches and locomotives had grown by 2.0 to 2.6 times only. The increase in transport output was thus brought about by more intensive utilization of the available assets, technological up gradation and improvement in productivity. However, the share of railways in total traffic steadily declined over these years. It came down from 89 per cent in 1951 to 40 per cent in 1995 in respect of freight traffic and from 68 per cent to 20 per cent in respect of passenger traffic. Better utilization of assets is a good trend. But reducing market share is a major problem and is in fact a survival question of the IR. Reducing market share indicates marginality of Railways in over all transportation or logistics management. Even up to this period no serious attempt could be under taken to capture back the reducing market share. There was phenomenal growth in number of road vehicle and the condition of many national highways and state highways improved substantially. This also gave tougher competition to Railways resulting in gradual loss of market share in favor of roadways.
 Ninth & Tenth Plan
According to Mishra S. K. & Puri V. K. (2010.) the main thrust of the Ninth Plan (1997-02) was on strengthening the capacity of the Indian Railways as the prime carrier of long distance bulk freight and passenger traffic.  To this end, the IR was concentrating on electrification of dense corridors, improvement in operations, optimal assets utilization, increasing container facility and raising manpower productivity. The IR had set a target of 525million tonnes of freight traffic to be achieved during the period 1997-2002.  There was a strategic shift in the objectives of IR under the Tenth Plan (2002-07) so that it regains some of the business it has lost to other modes of transport over the past few decades. With this purpose in view, the thrust was on modernization and technological up gradation of the railway system.  It was also decided to make Indian Railways more user-friendly and market-savvy organization.
Despite all these planning for last sixty years the Report of working Group on Railways (Railway board, 2007 pp 17) accept that IR faced with the uphill task of lifting bulk traffic. With the available stocks the IR could concentrate only with the bulk traffic. But at the same time market for piecemeal traffic has been growing. Due to over engrossing with bulk traffic the IR has not given sufficient attention in the strategy for bringing such high value traffic. The movement of this traffic had been neglected, which resulted in slip of grip of total freight movement of the country. Despite all stated goal and claim the problem of lack of infrastructure facility at major goods sheds and heavy congestion at major passenger terminals has not been solved properly. The freight terminals need higher level of mechanization to cater to the increasing demand in which nothing substantial has been possible to be done. IR has yet to achieve a satisfactory level of assets reliability. This is critically affecting transportation capability. The high probability of failure combined with randomness with which such failure occurs affects the operations adversely.  IR has still a long way to go for developing manpower properly in consistence with emerging technology.
The Eleventh Five Year Plan (2007-12) Document observes that the infrastructure deficit for the railways is reflected in saturation of routes and slow speeds for freight and passenger traffic. The objectives for the railways during the Eleventh Five Year Plan have been laid down as follows : (i) Capacity enhancement ( to achieve this objective, the strategy includes measures to maximize utilization of existing capacity in the short-run, construction of Dedicated Freight Corridors (DFCs)  and separating freight from passenger traffic, route-wise planning and capacity augmentation on the high density network, and augmenting production capacity for locomotives, coaches and wagons); (ii) technology up gradation (to achieve this objective, the strategy includes extending the Freight  Operation Information System to all loading points, switch-over to 22 .9 tonne axle load wagons and special wagons for movement of automobiles and bulk commodities etc.); (iii) achieving higher maintenance standards (through renewal, rehabilitation and replacement );and (iv) safety and passenger amenities. The total projected outlay for the Eleventh Five Year Plan for the Ministry of Railways is `.1,94,263 crore at 2006-07 prices which is to be financed through  gross budgetary support to the extent of 23 per cent.
11th Five Year Plan: (Report - Railway Board 2007 – pp 19):  The main object in the five year plan was identifying creation of adequate transportation facility to handle projected growth in the medium term and long term of both passenger and freight traffic and provide improved services to both the segments.  For this, Railway was supposed to build logistic park container and other freight terminals through PPP with increased use of IT-enabled services. For passenger segments, IR was supposed to make strategy to consolidate the rail share for long distance and medium distance services by increasing commercial speed of passenger trains and introduction of fast services between metropolitan cities at 150 kmph. For capacity enhancement, the work of DFC and improving capacity of golden quadrilateral and diagonal was supposed to take place.  New production facility for coaches, locomotives and wagons was supposed to be built up with higher capacity and better speed potentiality.  Some of the other operational strategies in 12th Plan were as under:
Ø  Further Improvement in wagon turnaround
Ø  Forging partnership with industries to set up logistic path including setting Agri-retail chain.
Ø  Premium service to bulk industries like steel, cement etc.
Ø  Running double / triple stack container for variety containers cargo including car carriers.
Ø  Developing existing new terminals to handle bulk commodities.
Ø  Developing rail linkage with ports for improving additional traffic.
To handle passenger traffic, the following strategy was supposed to be adopted :
Ø  Increasing capacity of the coach and train composition  to 24 coaches
Ø  Decongest major passenger terminals.
Ø  Running high-speed trains on selected routes at 150 - 160 kmph.
Ø  Identifying high-speed passenger corridors for Intercity traffic, in corridors like Mumbai-Ahmedabad, Delhi-Chandigarh-Amritsar,  Delhi-Jaipur, Chennai-Bangalore, Chennai-Coimbatore – Ernakulam .
Ø  Improving suburban services.
For capacity enhancement, 15 new lines were identified, 52 works of gauge conversion were supposed to be expedited and 108 works of doubling were to take place.
Under traffic facility work, 17 works of separator / bypass were identified. 1772 sheds were identified for improvement. For all these works, `77,050 crore was required. (Railway Board 2007 pp 53). However, the document has not given any specific sources from where this amount is to be received by the Railways. In absence of sound financial condition, IR has not been very successful in implementing the above goal of 11th Five Year Plan and not many works have been completed. Although work in many projects started, those works remained unfinished.
Total plan outlay for IR was proposed at `2,51,000 crore. (pp101). In this, IR forecasted that railway would get budgetary support up to 34 % and internal resources would generate 30 – 36 % and accordingly, extra budgetary support would be 30 – 36 %. Extra budgetary support means market borrowing through IRFC ,funding for DFC,  participation  of RVNL / other SPBs,  viability gap funding, wagon investment scheme, PPP and rolling stock released from manufacturers.  As the experience shows, resources mobilization through budgetary support and extra budgetary support has been on lower side.  IR had to be dependant more on internal resource generation.   Due to implementation of sixth pay commission, the resource generation of IR was also very limited. Hence, financial condition of IR continued to be very critical.
As per Planning Commission document, accelerated development of transport infrastructure, the major objective in the 12th Plan would be to augment the capacity and set up the best infrastructure. The construction of DFC would be expedited. The investment strategy would aim at developing high density rail corridor so that high-speed rail network is developed. In Roadways, substantial progress would be made by developing express ways.  Connectivity to ports would be increased. Transport sector would be motivated for implementing self-financing capacity policy relating to pricing and user charge.
In the above analysis it was seen how the IR has been provided support from the government of India thru different Five year Plans. It would be interesting to see how the IR has contributed to the Indian Economy in different dimensions of economy.
GROSS DOMESTIC PRODUCT: RAILWAYS
Due to reducing market share the IR’s contribution has also started declining in various fields of economy of nation. In terms of gross domestic product (GDP) which refers to the market value of all final goods and services produced within a country in a given period of time the decline of contribution of IR is most visible. At current price in 1970-71 the contribution of IR use to be 1.98%. This came down to 0.94% in 2005-06. Although there was some improvement after wards in 2009-10 it was hovering at 0.98%. Table no. 04 gives a detail comparative analysis of contribution of IR in GDP at current and constant prices. Since GDP indicates the economic health of a country the contribution made by the IR indicates how much IR as infrastructure / logistics service provider has contributed in well being of the country. The declining contribution indicates that the IR is gradually becoming weaker in the contribution of making country strong.
Table No. 04: GROSS DOMESTIC PRODUCT: RAILWAYS
At  Current  Prices
At  Constant  Prices

`. crore
% Chg.
% Share in GDP
`.  crore
% Chg.
% Share in GDP
Old series ( Base year )  : 1999 – 00)
1970-71
850
4.55
1.98
7,442
3.05
1.57
1980-81
1,597
1.33
1.21
10,278
2.75
1.60
1990-91
8,238
14.05
1.60
15,332
4.53
1.46
2000-01
21,443
1.52
1.11
21,996
4.14
1.18
2004-05
29,645
10.13
1.03
28,257
7.29
1.18
2005-06
30,771
3.80
0.94
30,731
8.76
1.17
2006-07
37,416
21.60
0.99
33,800
9.99
1.18
2007-08
43,754
16.94
1.01
36,941
9.29
1.18
New Series (Base year : 2004-05)
2004-05
29,162
-
0.98
29,162
-
0.98
2005-06
30,771
5.52
0.91
31,339
7.47
0.96
2006-07
37,429
21.64
0.95
34,831
11.14
0.98
2007-08
43,608
16.51
0.95
38,236
9.78
0.98
2008-09
47,478
8.87
0.90
41,161
7.65
0.99
2009-10
60,144
26.68
0.98
45,035
9.41
1.00
 (Source: National Income Statistics, Centre for Monitoring Indian Economy, Mumbai-July 2011 pp33)
NET DOMESTIC PRODUCT
The similar trend is also noticed when analysis of contribution of IR in Net domestic product is made. Net domestic product means production based on ownership. It is product produced by enterprises owned by a country's citizens. Since the IR is owned by central government, particularly after independence, it is more similar to GDP. However this includes all the indigenous contribution made by IR. At current price in 1970-71 the contribution of IR in NDP use to be 1.62 %. This came down to 0.77% in 2005-06. Although there was some improvement after wards in 2009-10 it was hovering at 0.89%. Table no. 05 gives a detail comparative analysis of contribution of IR in NDP at current and constant prices.
Table No. 05: NET DOMESTIC PRODUCT: RAILWAYS
At  Current  Prices
At  Constant  Prices

`. crore
% Chg.
% Share in NDP
`. crore
% Chg.
% Share in NDP
Old series ( Base year )  : 1999 – 00)
1970-71
655
2.66
1.62
5,179
2.30
1.17
1980-81
965
0.31
0.80
7,010
2.56
1.20
1990-91
5,863
17.00
1.26
11,788
6.39
1.20
2000-01
16,552
0.87
0.96
17,260
5.19
1.03
2004-05
21,968
6.55
0.86
23,079
8.43
1.09
2005-06
22,349
1.73
0.77
25,384
9.99
1.09
2006-07
28,509
27.56
0.85
28,259
11.33
1.11
2007-08
33,801
18.56
0.89
31,139
10.19
1.12
New Series (Base year : 2004-05)
2004-05
21,696
-
0.82
21,696
-
0.82
2005-06
22,915
5.62
0.76
23,643
8.97
0.81
2006-07
28,529
24.50
0.81
26,542
12.26
0.83
2007-08
34,144
19.68
0.83
30,021
13.11
0.86
2008-09
36,398
6.60
0.77
32,370
7.82
0.88
2009-10
48,778
34.01
0.89
35,734
10.39
0.90
(Source : National Income Statistics, Centre for Monitoring Indian Economy, Mumbai-July 2011 pp62)
GROSS CAPITAL FORMATION
Due to decreasing market share the IR’s role in different aspect of economy has also started decreasing. For instance the gross capital formation of railways with respect to all industry started declining. According to World Bank “Gross capital formation” (GCF) (formerly gross domestic investment) consists of outlays on additions to the fixed assets of the economy plus net changes in the level of inventories. Fixed assets include land improvements (fences, track, colony land, good sheds, parcel sheds, other surplus land kept for future need, drains, and so on); plant, machinery, and equipment purchases; and the construction of roads, and the like, including schools, offices, hospitals, railway residential dwellings, and commercial and industrial buildings. Inventories are stocks of goods held by firms to meet temporary or unexpected fluctuations in production or sales, and "work in progress." During 1970-71 it uses to be 4.60% at current price it declined to 1.10% in 2000-01. However after that there was gradual increase, it increased to 1.34% in 2007-08 with base year of 1999-2000. At constant price this percentage use to be 4.14 in 1970-71 which came down to 1.12% in 2000-01 and 1.23% in 2007-08. However there was some improvement in performance of IR and this resulted into improvement in gross capital formation of railways as it went up to 1.53% in 2008-09 and 1.49% in 2009-10. Table no. 06 gives a detail comparative analysis of contribution of IR in GCF at current and constant prices.
Table No. 06: GROSS CAPITAL FORMATION: RAILWAYS
At  Current  Prices
At  Constant  Prices

`. crore
% Chg.
% Share in GCFIND
`. . crore
% Chg.
% Share in GCFIND
Old series ( Base year )  : 1999 – 00)
1970-71
332
18.57
4.60
3,856
9.79
4.14
1980-81
808
1.25
3.00
3,854
-5.14
2.77
1990-91
3,038
16.62
2.21
6,213
7.75
1.93
2000-01
5,430
2.32
1.10
5,287
-0.38
1.12
2004-05
13,036
19.84
1.36
9,023
3.38
1.21
2005-06
15,344
17.70
1.27
10,174
12.76
1.13
2006-07
18,227
18.79
1.25
11,668
14.68
1.14
2007-08
23,734
30.21
1.34
14,567
24.85
1.23
New Series (Base year : 2004-05)
2004-05
13,124
-
1.30
13,124
-
1.30
2005-06
15,409
17.41
1.26
15,044
14.63
1.27
2006-07
18,329
18.95
1.23
16,982
12.88
1.24
2007-08
22,229
21.28
1.21
19,308
13.70
1.20
2008-09
29,661
33.43
1.56
23,653
22.50
1.53
2009-10
32,337
9.02
1.45
25,850
9.29
1.49
(Source : National Income Statistics, Centre for Monitoring Indian Economy, Mumbai-July 2011, pp176)
GROSS FIXED CAPITAL FORMATION BY RAILWAYS
To have a deeper understanding it would be better how the IR has performed in terms of gross fixed capital formation (GFCF). GFCF is measured by the total value of a producer's acquisitions, less disposals, of fixed assets during the accounting period plus certain additions to the value of non-produced assets (such as land assets) realized by the productive activity of institutional units. In this way GFCF is a measure of gross net investment (acquisitions less disposals) in fixed capital assets by enterprises or government within the domestic economy. A gross fixed capital formation will exclude any assets that cannot be properly designated as fixed capital assets. Table no. 07 gives a detail comparative analysis of contribution of IR in NDP at current and constant prices. As shown in the table in 1970-71 GFCF uses to be 4.85% which declined to 1.15% in 2000-01. After that there was reversal in trend and it reached to 1.59% in 2009-10. Such lower percentage of GFCF indicates that the IR has not been able to do much in terms of fresh fixed capital accusation say in terms of additional new lands, more number of wagons, coaches & locomotives and production industries associated with IR. In such condition the path to future expansion has slowed down heavily. 
Table no. 07: GROSS FIXED CAPITAL FORMATION BY RAILWAYS


At  Current  Prices
At  Constant  Prices

`. crore
% Chg.
% Share in GFCFIND
`. . crore
% Chg.
% Share in GFCFIND
Old series ( Base year )  : 1999 – 00)
1970-71
309
3.34
4.85
3,621
-2.50
4.27
1980-81
732
0.14
2.74
3,564
-4.99
2.59
1990-91
3,047
18.84
2.32
5,232
10.17
2.02
2000-01
5,479
6.99
1.15
5,332
4.12
1.17
2004-05
12,975
21.26
1.45
8,980
4.61
1.27
2005-06
15,045
15.95
1.35
9,956
10.87
1.20
2006-07
18,129
20.50
1.35
11,601
16.52
1.22
2007-08
23,699
30.72
1.48
14,546
25.39
1.35
New Series (Base year : 2004-05)
2004-05
12,975

1.39
12,975

1.39
2005-06
15,045
15.95
1.34
14,695
13.26
1.36
2006-07
18,129
20.50
1.35
16,802
14.34
1.36
2007-08
21,945
21.05
1.34
19,064
13.46
1.33
2008-09
29,407
34.00
1.64
23,451
23.01
1.61
2009-10
32,074
9.07
1.59
25,648
9.37
1.65
(Source : National Income Statistics, Centre for Monitoring Indian Economy, Mumbai-July 2011, pp206)
NET CAPITAL STOCK
A deeper understanding of IR’s health would come Net capital stock is the stock of assets surviving from past periods, and corrected for depreciation is the net or wealth capital stock. The net stock is valued as if the capital good (used or new) were acquired on the date to which a balance sheet relates. The net stock is designed to reflect the wealth of the owner of the asset at a particular point in time. Hence, the notion of "wealth" stock which seems more telling than ‘net’ stock because there are other types of "net" capital measures, for example the productive stock is ‘net’ of efficiency losses of capital goods due to ageing. The net stock is the measure that enters balance sheets of institutional sectors. In economic statistics and accounts, capital formation can be valued gross, i.e., before deduction of consumption of fixed capital (or "depreciation"), or net, i.e., after deduction of "depreciation" write-offs. Table no. 08 gives a detail comparative analysis of contribution of IR in Net capital stock by Railways at current and constant prices. As shown in the table in 1980-81 NCS uses to be 4.88% which declined to 3.72% in 2000-01. After that there was reversal in trend and it reached to 10.8% in 2006-07 as the IR has come into relative comfortable situation. However after that the momentum could not be maintained and it again went down to 4.60% in 2009-10.
Table no. 08: NET CAPITAL STOCK BY INDUSTRY: RAILWAYS


At  Current  Prices
At  Constant  Prices

`. crore
% Chg.
% Share in NCS
`. . crore
% Chg.
% Share in NCS
Old series ( Base year )  : 1999 – 00)
1980-81
19,177

4.88
1,00,079

4.70
1990-91
62,764
8.84
3.78
1,08,241
1.09
3.22
2000-01
1,27,772
3.72
2.21
1,23,741
0.45
2.22
2004-05
2,02,210
22.21
2.28
1,36,321
2.90
1.94
2005-06
2,22,030
9.80
2.18
1,41,148
3.54
1.85
2006-07
2,36,944
6.72
2.02
1,47,275
4.34
1.76
2007-08
2,67,847
13.04
1.96
1,56,040
5.95
1.69
New Series (Base year : 2004-05)
2004-05
1,96,100

2.10
1,96,100

2.10
2005-06
2,07,975
6.06
1.98
2,03,679
3.86
2.00
2006-07
2,30,442
10.80
1.88
2,12,965
4.56
1.91
2007-08
2,61,684
13.56
1.83
2,23,982
5.17
1.82
2008-09
3,08,801
18.01
1.82
2,39,421
6.89
1.77
2009-10
3,22,994
4.60
1.66
2,56,480
7.13
1.74
(Source: National Income Statistics, Centre for Monitoring Indian Economy, Mumbai-July 2011, pp276).
Thus in different segment of Indian economy the contribution of IR has decreased consistently and continuously. The situation became more critical and grim after year 2000.Although there was some improvement during 2008 or 2009, the trend was not maintained and deterioration continued further. In view of its in house management this trend was quite natural.
Although IR has tried some alternative strategies like market borrowings through the Indian Railways Finance Corporation and schemes like ‘Built Own Lease Transfer’ (BOLT), and ‘Own Your Wagon’ these schemes have never caught fancy of the investors. Only in recent time ‘Public Private Partnership’ has got some attention of the investing public with some successful examples of government –public partnership as it was seen in the case of Pipava Railways or Kutch Railways. No doubt, one can work on PPP model for attracting more capital, the IR may look to its internal capacity for generating more revenue for better performance and required growth to retain and further improve its market share. A look on the internal revenue generation would provide some perspective for this proposition.
Problems and Issues in Railway Development
Falling market share:
According to the White Paper released by the Ministry of Railways in December 2009, the market share of rail transport has reduced drastically from 89 per cent in 1950-51 to 30 per cent in 2007-08. The road sector has been the biggest gainer with its share increasing from 11 per cent 1950-51 to 61 per cent in 2007-08. However, the railways have maintained their traditional dominance in the carriage of bulk commodities (for example, 66 per cent in case of coal in 2007-08, 66 per cent in iron ore, 75 per cent in fertilizers and 45 per cent in cement). In this context, an important observation made by the White Paper is that 88 per cent of the railways freight traffic is accounted for by eight bulk commodities with the share of non-bulk commodities being only 12 per cent of the total traffic. For improving the market share of railways, a focused strategy aimed at providing better services at competitive tariffs is required. In addition, it is also necessary to provide faster, transit and efficient handling at terminals.
As far as the passenger segment is concerned, it is facing increasing competition from better roads and low cost, no-fills airlines. Accordingly, railways need to provide an adequate number of faster intercity and medium distance services to face the competition and win back business.
Inadequate capacity network and infrastructure:
The biggest constraint that railways face today is of inadequate network capacity and infrastructure. In fact, capacity creation on railways over the years has not kept pace with the transport output. Over the period 1950-51  to 2007-08, route kilometres has increased  by just 18 per cent and track-kilometres by 11 per cent while freight and passenger output has gone up by more than 12 and 11 times  respectively.  This clearly shows that additional infrastructure has not kept pace with the increase in traffic output. In addition to this infrastructure constraint, the White Paper highlights the following factors as well.
Common corridor for both freight and passenger traffic:
With freight trains and slow moving passenger trains on the same corridor, it is extremely difficult to run fast passenger services.  Further with the emphasis on passenger traffic (presently 60 per cent of the total train-kms), passenger trains take precedence over running of freight trains. On some of the major trunk routes, introduction of new passenger trains directly affects freight train movement. It is no surprise, therefore, that the average speed of freight trains was only 25.7 kmph in 2008-09. it may be noted that one MEMU train in one trip hardly makes ` one lakh earning. But, when such passenger trains are running all goods trains making approximately ` 30 to 40lakh per trip has to wait giving precious path to a passenger train. In busy sections more goods trains  have to wait pass one passenger train.
The meter gage and narrow gauge network:
Though accounting for 19.2 per cent of the total route kms contribute only 2 per cent and 0.2 respectively of the total passenger and freight traffic output of Indian Railways. It is worth mentioning that almost all Meter guage and Narrow guage sections are heavy loss making section. Such sections are not even able to meet their fuel expenditure i.e. the cost of diesel, not to think of maintenance and procurement cost of track, coaches,, locomotives. The IR needs to take gradual steps to close down such section one by one. Further, if any section is being converted into broad guage then it should be ensured that such sections are connected to more than one section where it should be possible to run some freight trains on real demand basis and not on imaginary traffic projection which never realizes  
Skewed traffic patterns on the railways:
With more than 55 per cent of the traffic moving on the golden quadrilateral and its diagonal connecting the four metropolitan cities of Delhi, Kolkata, Mumbai and Chennai, and the Delhi-Guwahati routes which form less that  20 per cent of the total Indian Railways network. This has saturated the high density route with more than two-thirds of the section showing a utilization of over 100 per cent in 2007- 08. Freight transit time on these high congested routes is severely affected. A number of mineral and port routes are severely congested. Somewhere in 2007 a grand project of ‘Dedicated Freight Corridor’ (DFC) was announced with a target of completion of within five years i.e.2012.Till 2012 its progress has been  rather very limited and despite several correction in its targated date of completion of 2018 would be rather difficult to achieve even for Delhi-Mumbai and Howrah Amritsar sections                           
Cross-subsidization:
Freight earnings today account for over 66 per cent of the total traffic earning of Indian railways. Freight traffic on Indian railways is among the highest in the world (it is four times as compared with US railroads, more than three times as compared with Russian railways and more than twice as compared with Chinese railways). One of the main reasons for this is that passenger fares are very low in India as compared with most of the foreign railways with result that there are substantial losses in passenger operations (the loss on coaching operations was as high as `13,958 crore in 2008-09. High freight rates cross subsidize the low passenger fares.  This makes the fare-freight ratio of Indian railways one of the lowest in the world (it was only 0.26 in India in 2008-09 while it was 1.2 in China and 1.4 in Korea). High freight rates result in high prices of transported goods creating inflationary pressures in the economy.
The Problem of funds and cost over runs: 
As on April 1, 2009 the balance funds required to complete the projects (new line, gauge conversion and doubling projects) was as high as `79,462 crore.  Given the fact that the average annual plan expenditure under these categories of projects in the last two years was about `9,000 crore, at the current rate about 9 years will be required to complete the projects on hand.  According to the White Paper2009, the above are rough abstract estimates and the actual funds required could be much more. Moreover, there is a constant pressure to undertake new projects (mostly in the form of new lines) by various sections of the society.  According to the White Paper, "The severe scarcity of funds against the requirement has led to the spreading of resources thinly over a large number of projects, and all these projects are delayed due to shortage and uncertainty in the availability of funds, leading inevitably to time and cost overruns”. At times, there is cost escalation of projects.  This is due to many reasons like : (i) escalation due to price rise during the execution of the project ; (ii)  material modifications as dictated by site conditions, changes in requirements, technology change/enhancements etc ;  (iii)  long gestation period of many infrastructure projects ; (iv) weaknesses in project management etc.  As a result, a serious resources crunch emerges. This is very serious state affair The IR needs to identify those projects which are financially viable and critical in adding its carrying capacity or running of more goods trains or connecting all the busy routes. Such projects should be completed in a time bound manner. In other projects no money should be invested until a third party takes a responsibility for that.
Lack of Technology upgradation: 
In a situation of limited resources, significant saving in investment and in cost of operation, along with improvement in quality of services can be realized by inducting modern technology. The existing technology of both electric and diesel locomotives is considerably old.  There is a need for introduction of higher horse-power electric and diesel locomotives, which are also more fuel-efficient. In view of the rapid growth of technology, it is necessary for the IR to build a technology base of our own, capable of not only selecting and assimilating the latest and most appropriate technologies, but also of developing further, continually, so as to achieve near self-sufficiency in the technological know-how.
In addition to the above problem and issues, it is also necessary to emphasise some other factors that have affected the operations of railways adversely. These include lower capacity utilization of wagons, rampant corruption, strikes on various pretexts, etc.  Also, the incidence of failure of equipment while on run is fairly high.  This bring about 'quasi-paralysis of corridor’ and consequent wastage of transport capacity.  This leads to under-utilization of costly assets and even somewhat nullifies the investment.  Thus, there is an imperative need to improve design, manufacture and maintenance capabilities. The failure frequency has to be reduced to near zero.
Here important critical question is- due to decreasing market share of IR in both freight and passenger services who is at loss. Despite the fact that the IR has made tremendous improvement in  absolute number i.e. tonnage in freight and millions of passenger transportation,  the IR's contribution has come down to twenty percent by the end of first decade of twenty first century what it used to be more than  eighty percent during middle of twentieth century.  The proportional reduction in carrying capacity of freight and passenger transportation potentiality of the nation has resulted in major bottleneck in transportation sector. Due to this, there is acute shortage situation in logistic management. As per   one estimates, Indian companies have to bear an extra expenditure of 10% on logistic management due to high congestion in both freight and passenger sectors. It takes much longer period to reach any commodity to the destination. This increases the time period of commodity 'In-Transit'.  This also increases 'Cycle Time'. Hence, the inventory size also has to be increased manifold.  Similarly, in passenger segment, it is very difficult to get confirmed reservation in almost all busy sectors in almost all months in different classes of IR. Consequently, the demand is being catered by road and air transportation which is more or less much disorganized with high safety risk and costlier respectively. The question is who suffers? Ultimately, it is the country which has to pay very heavy price in terms of the efficiency and slower industrial development including implicit social cost being generated out of higher accident related disability or death and worsening financial condition due to inefficient market working.
 One of the important issues here is to examine why the IR has reached such a stage where there is not much financial source to sponsor its development activities. Presently, the IR has more than five hundred projects which have been started at one point of time or other with some initial investment. Most of these projects have been left in between due to lack of sufficient funds. Such kind of situation has resulted in blockage of huge funds without giving any financial result or other spin off benefit. Further due to incomplete status, the project cost also increases phenomenally, making it further more difficult to complete the project.
As far as private partnership in public project (PPP) is concerned, attempts have been made earlier in the form of Providing several section for new lines, gauge conversation, advertisement, running of catering units, operation and maintenance of retiring rooms, operation and maintenance of driver and guard Rest Room, mechanized cleaning of stations, coaching depots, trains etc. The Expert Group (Railway Board2012 pp 5) has recommended to develop PPP models in various areas of Railways to attract private investment to augment core capabilities related to Stations and Terminals, High speed rail corridors, Elevated rail corridor, Private freight terminals, Leasing of wagons, Loco and coach manufacturing units, Captive power generation, Renewable energy projects (solar, wind etc.), Railway Hospitals, Railway Schools, and Laundry Merchandizing. It was anticipated that these initiatives should provide significant additional resource mobilization, lead to speedy growth and augmentation of railway capabilities and improve collaboration and efficiency.
However, till now, the response has not been very positive as any private investor would like to get very high returns almost more than fifteen percent per annum. However, in any railway project, this much high return is not possible in many projects, as there is very high sunk cost and long gestation period. Due to this in initial years any private investor is not able to make any substantial profit, many times for years together. Further, any profit in future depend on the economic condition of the country at the time (i.e. boom period or downslide) and sector specific policy of various departments of the Government of India during those years. Since there is no certainty that these two conditions would always be favorable all the time, hence investors are very hesitant to invest in IR related PPP project. Furthermore, there are certain areas where there is higher probability of profit like port connectivity projects or projects on the Golden Quadrilateral or diagonals. But such areas are not being offered by the IR as IR would never be desired that high profit yielding projects are offered to PPP projects.
            Next question would be why budgetary support of Government of India has been reduced. Initially, the IR was the prime mode of transportation. Hence, the government was also supporting it wholeheartedly.  Particularly, during British period, as the railway was a mode through which the colonial power was taking Indian raw materials and previous products to Britain and was passing finished product to India. However, after the independence in 1947, the priority of the Government of India changed.
 Main emphasis came to eradication of poverty, agricultural development, industrial development, welfare activity etc. Consequently, there was reduction in budget for Railways, Gradually; development of roadways, including national highways and state highways etc. also became part of planning process. Even at the level of Centre, Prime Minister Gramin Road Yojana started. However, no such specific scheme has started with respect to Indian Railways. Many poverty eradication schemes could have been linked with different railway schemes, projects or welfare schemes. That was also not done. For instance, Mahatma Gandhi National Rojgar Guarantee Scheme (MNREGA) project related to Railways could have been linked. However, nothing of that sort   has been done. So was the case earlier with different poverty eradication schemes. Similarly, for the industrial development activity, many promotional schemes were executed, but none of the schemes for development of Railways in backward region has been linked to that. Planning Commission can take positive decision that in future different various poverty eradication programs can be linked with Railways and development of Railways can be made a part and parcel of such scheme.
            Due to poor economic condition of the country, Indian Railways (IR) has had to face conditions in which for providing different welfare measures, IR had to expend huge amount without getting any financial return. For instance IR has to provide facility of monthly season ticket and quarterly season ticket.  This is highly subsidized, where approximately 6% fare is collected from the passengers and 94% is contributed by the Railways. This is for the common welfare of the working people. However, for this IR does not get any monitory benefit. Similarly, many passenger services particularly short distance trains barring Rajdhani, Shatabdi, Garib Rath and Duronto express trains are loss making enterprises. At an average `.40 is collected from the passengers out of 100 expenditure made on them. Due to this financial loss of IR on passenger services has gone up to ` 20, 000 crores in 2010-11.  However, IR has not got any financial compensation or incentive from Ministry of Finance or any other department or ministry of welfare etc.  It may be noted that during recent time, Ministry of Railways has been communicated by Ministry of Finance to raise passenger fare. Planning commission has also recommended for the same. Hence, it is high time that IR should gradually move towards being self-dependant and self-sufficient and generate more revenue for financing different developmental projects. What is the way out ?
Self-generation of Revenue:
 In the above analyses we have seen that IR was earlier much dependant on government support.  However, gradually that support has declined.  In this situation, the realistic approach would be, to be self-dependant for revenue generation in such a manner that there are enough funds for capital expansion as well. In this perspective it would be better to plan our revenue in such a manner that money is spent on operating expenses and on replacement of old stock.  Rather it should also have some provision for future expansion of IR.  This means the earning if Railway should cater to the needs of Operating expenses, Replacement and capital expenses
For this, there is needed change in managerial attitude.  Indian Railways has to clear cut demarcate its budget for all these purpose.  If in future the IR does not change its position on this line, then the future expansion will always be doubtful and it will have to be dependent on other agencies including the government for its future development.
Passenger Services to be self-dependant:   Corollary to last paragraph is to say that segment wise all services of IR should be self-dependant.  One of the major services of IR i.e. – Passenger Service is incurring loss of about Rs20000/- per year by 2011.It would be prudent to check such losses on priority basis.   For this several measures should be initiated like, rationalization of passenger fare and linking it with actual expenditure, gradually increasing passenger fare in General and Sleeper class to match it with actual expenditure, running more passenger trains with more IIIAC coaches which give maximum profit to IR, running more long distance trains and canceling short distance trains particularly trains with a length of 100 kms etc.  Since India is a democratic country all these steps cannot be initialized in one go.  Still the mood of the nation is required to be changed by continuous propagation and gradual increase in fare component and taking into confidence different democratic institutions.
Closure of uneconomic branch lines: 
Presently the IR is having more than 200 uneconomical branch lines including in MG & NG.  Among these barring a few lines which is having heritage value like lines running between NewJalpaiguri - Darjeeling, Kalka - Shimla, Mettupalaiyam – Udhagamandalam, Pathankot – Joginder Nagar, Neral – Matheran etc.  All other lines are not serving any meaningful purpose as with the substantial improvement with road services.  These services are rarely patronized and having no genuine passenger in bulk quantity. Hence these are required to close one after another

The problem of Rail-Road Coordination

 Rail and road transport are complementary to each other. Taken together, they form the principal means of connecting all parts of the country with one another. The road transport provides an important link between farmers in the village and the local mandis or the nearest railway station.  The railways, on the other hand, provide connections between the areas of production and the areas of consumption separated from each other by long distances. Since railway cannot reach every nook and corner of the country, they need the assistance of road transport. Trucks and other means of road transport must collect goods from production centers and bring them to the railway station. At the railway station, goods would be loaded on trains and sent to far flung places. Once they reach their destination, they will again need the assistance of road transport to deliver them to the distribution centers. In a similar way one cannot think of road transport in isolation.  Heavy machinery, iron and steel, cement, coal and other minerals etc which are heavy and bulky goods cannot be transported by trucks. This requires assistance of railways.
            This shows that railways and road transport are complementary to each other.  However, they have tended to become competitive everywhere and railways have been the loser.  As stated earlier, this is on account of the fact that road transport has certain important advantages over rail transport. For instance, road transport provides door to door service. Therefore, loading and unloading charges are comparatively low and possibilities of theft are reduced. In addition, goods reach their destination faster. The operational and maintenance coast of road transport is also much lower as compared to rail transport.  In the case of road transport, there is complete flexibility in adjusting route and time table according to the needs of individual customers whereas railways follow a laid down route and operate according to a fixed time table. Moreover, the railways are subject to many legal restrictions and regulations in the overall interests of public safety. The formalities involved in booking and release of goods are numerous causing considerable delays.  What is more, transporters develop personal relations with regular senders of goods. This enables them to provide certain personalized services which no railway system can provide.
 On account of the above reasons, railways have lost ground to road transport over the years and, as stated earlier, the share of road transport in freight traffic as well as passengers traffic has increased steadily. However, now once again, rail transport has been attracting increasing attention. This is due to the reason that constantly increasing prices of petroleum and petroleum products are imposing heavy burden on the balance of payments of the country.  A large amount of foreign exchange is being spent on the import of petroleum and petroleum products. Moreover, the consistently increasing number of vehicles on road is leading to heavy congestion on roads leading to considerable wastage of time in traffic jams on the one hand, and increasing air and noise pollution on the other hand.
 In conclusion in can be said that both rail transport and road transport are important and play crucial role in the country's development. In fact, the entire transport system of the country should be viewed in an integrated way and so developed that overall transport costs are minimized.
The Expert Group (Railway Board2012 pp 14-16) has recommended following organizational reforms to empower officials, speed up the decision making process and introduce professional project management systems in IR.
1. Re-organize Railway Board along business discipline to reflect Chairman as Chief
Executive Officer and Members for Safety, Business development/Commercial, Technology/ ICT & Signaling, Freight, Passenger Services, Infrastructure, Finance, HR, and PPP
2 Create commodity wise Key Account Directors under Member Freight for major commodities like coal, iron ore, steel, food grain, fertilizers etc. Coal is 45% of total freight traffic and needs special attention.
3 Create Key Account Directors of suburban, long distance passenger etc. under Member Passenger.
4 Ensure autonomy, flexibility and accountability at all levels with clear P&L responsibilities
5 Make provisions for handling of all parliamentary functions (liaison functions with government, including handling of Parliament questions) by a Joint Secretary level officer in the Ministry, which would set the RB free to focus exclusively on business issues
6. Empower Zonal Railways along with accountability. The present system of seeking sanction for Capital investment to be included in the Works and Rolling Stock Programs of railways from the Railway Board/ Ministry should give way to a more decentralized decision-making in critical areas, like safety, traffic facility, passenger amenity and other areas, by delegation of powers at the zonal level. Further, GMs of Zonal Railways to be empowered to take decisions, within a framework of rules and investment limits. The Zonal Railways should also be made accountable for return on capital, transport output, profitability and safety.
7 Revamp accounting systems so that separation between the cost of infrastructure services and the operational activities and rational pricing is achieved and train wise, route- wise profitability analysis is available. This would help assess the usage charge of infrastructure and rolling-stock resources and also in accurate allocation of overheads. This would also help in computation of the cost of operation of trains and services and appraisal of profitability of various business lines.
8 Re-engineer Business Processes to streamline the decision-making process to bring about accountability, result-orientation and responsiveness at all levels and develop IT tools with this objective in mind.
9 Modernize procurement processes and benchmark products and suppliers
10 Review the existing PPP policy framework in the light of hitherto poor response and PPP experience.
11 Create a post of Member (PPP) responsible for project development and processing of all PPP projects to facilitate their speedy sanction by the Government and award of concession. The Member should have a multi disciplinary team of officers, including finance, to deal with various railway projects.
12 Establish a Committee for approval of PPP projects to be headed by Chairman Railway Board with Financial Commissioner, Member (PPP) and the concerned member to whose area of responsibility the project belongs. The process and procedure followed should be similar to that of PPPAC followed in Government of India. The Board should decide and approve the projects and they should not be examined or referred back by the members to their respective directorates. The projects thereafter should follow the normal procedure of approval by PPPAC and CCI.
13 Appoint a ‘PPP Ombudsman’ to resolve any disputes that may arise between the      private sector and the government in interpretation and enforcement of provisions of the agreements. The Ombudsman should be a quasi judicial authority and should have the authority to give directions which are binding on all parties.
14 Constitute a Railways Tariff Regulatory Authority in order to provide a level playing field to all stakeholders.
15 Establish a separate Authority/SPV/Organization for implementation of Major Projects such as development of high speed corridors, redevelopment of railway stations etc.
16. Build capacities, for the officers at the Zonal railways to manage PPP projects. A PPP cell should be constituted in each zone to identify, develop, implement and monitor projects at the zonal level.
17 Computerize all Railway business/ operations including financial management, inventory, HR and other assets
18 Implement ‘Mission Mode’ approach for all 15 focus areas with clear objectives, measurable milestones, tangible deliverables, and well defined timelines. Each of the 15 Missions should be headed by a Mission Director for a three-year term, with autonomy to take decisions in their respective areas. All the Mission Directors and associated teams should report to the Railway Board. Each Mission should be provided with appropriate budget and operational autonomy to implement. Each Mission Director should use standard project management tools to manage and monitor.
19 Set up a High Level Committee to facilitate co-ordination amongst the 15 missions, fast-track implementation and address bottlenecks, coming in the way of implementation.
Thus these recommendations were quite revolutionary in nature and likely to be epoch changing for the IR. However, in present socio-politico condition it is quite unlikely that these recommendations are going to be accepted in one go. It is quite possible that some of these recommendations may be accepted , slowly one by one, particularly those which does not disturb much the existing inter departmental or intra departmental orders, whereas many others will be placed in file and will be forgotten as happened in the past with several recommendations of several other committee.
The Expert Group (Railway Board2012 pp 13) has assessed the total investment requirement as`.5,60,396 crores for the proposed modernization initiatives. Railway sub-group of XIIth five year plan has estimated additional requirement of.` 4,42,744 crores for various other investments proposed to be undertaken during the 12th FYP and not covered under modernization initiatives. Table no. 9 below provides a summary of the total investment requirements (both for modernization and as recommended by the XIIth plan sub-group on Railways). It outline an investment of ` 8,39,000 crores, during the XIIth FYP, which includes ` 3,96,000 crores of modernization plan investment recommended by the Expert Group.

Table No.9: Sources of funds
Sources of funds
` in crores
1
Gross Budgetary Support
250,000
2
Internal Generation
201,805
3
Leasing/Borrowings
101,000
4
PPPs
229,024
5
Dividend rebate
24,000
6
Road Safety Fund
16,842

Total
822,671
It is a quantum jump from investment levels of ` 2,03,000 crore in the XIth plan and ` 84,000 crore in the Xth plan. The Expert Group recommends for the main sources offunds for IR are internal generation (revenue surplus), gross budgetary support (on which IR currently pays an annual dividend of 7%) and extra budgetary resources comprising market borrowings, bonds and PPPs.]. To  bridge the gap of `. 16,469 crores
the following funding pattern was recommended:- Disinvestment in Railway PSUs, Re-densification/ commercialization of surplus land in existing railway colonies in different locations. A few pilot projects could be immediately explored. Commercial exploitation of railway schools and hospitals should be done without displacing any of the priorities from the point of view of IR employees. Management contracts (on the basis of revenue sharing) could be tried for some of the larger hospitals/ schools with a view to achieve significant up gradation of standards Modernization surcharge from passengers on a per passenger km basis. Although it seem to be quite attractive these suggestions, the implementation remains to the question of future and its acceptance by the IR management and employee, the Finance Ministry , The Planning commission or in general the government of India


Bibliography

Mishra S. K. & Puri V. K. 2010 Indian Economy -Its Development Experience. (28th ed.)

Ministry of Railways,2012: Indian Railways Facts & Figure 2010-11

National Income Statistics, Centre for Monitoring Indian Economy, Mumbai-July 2011
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