Efficacy of corporatisation in the context of Indian railways: a study of Konkan railway corporation limited

Abstract

The Indian Railways (IR) is going through a difficult financial situation withearnings not keeping pace with the growing expenses. In the new economiccontext, the share of budgetary support to IR is coming down and the railways isunder great pressure not only to survive as an economically viable organisation,but also to play the role expected of it in the growth and development of theeconomy. This phenomenon is not unique to Indian Railways, the Railwaysystems world over are passing through a phase of restructuring. The privatisationexperiences of British Rail (BR) and Japanese Rail (JR) have provided a numberof lessons for the Indian Railways. The BR privatisation based on verticalseparation of activities and divided ownership with conflicting accountabilities hasbrought out in sharp focus that railway operations is an integrated activity and isdifficult to un-bundle. However, the BR privatisation process based on theprinciple of divided ownership of track and trains has been able to bring incompetition amongst the train operating companies. The JR privatisation on theother hand, which is based on horizontal separation (regional subdivision),functional distinction, and vertical integration, provides a successful model forprivatisation. But the JR privatisation process has been able to provide onlybenchmark competition among the various area monopolies that are created by thehorizontal separation.Corporatisation in terms of Indian Railways can be viewed in one of the threeways: 1) as a prelude to privatisation, 2) as a method to avoid or postponeprivatization, or 3) as an effort to take advantage of the decentralised working. IRhas separated some of its non-core activities into corporations like: RITES,IRCON, IRFC, CONCOR, and IRCTC etc. many of which arc performingsatisfactorily. The present study on Konkan Railway Corporation tries to drawlessons from this experience on the merits and demerits of corporatisation and itsapplicability to the rest of the Indian Railways. Konkan Railway CorporationLimited (KRCL) formed under the Build, Operate, and Lease (BOT) scheme wasthe first public sector company to actually run mainline trains carrying revenueearningpassengers.A comparison of the performance of KRCL with the departmental functioning ofIR reveals the fact that in spite of a difficult financial situation, KRCL has beenable to perform better than many of the IR zones. The findings of this study showthat, KRCL has performed better than IR in following areas:1. Better operating ratio than IR2. Better employee productivity3. Lesser spending on staff costs as pct. of total working expenses4. Technological initiatives5. Innovation in commercialisation of servicesThe negative features of the KRCL include the recurring losses due to inability tocover finance charges. The better performance of KRCL can be partially attributedto the higher passenger and freight rates that it is allowed to charge fetching morerevenue at-least in some selected in elastic markets and outsourcing of many of theactivities keeping the staff costs low. However, nobody can deny the achievementsof KRCL in terms of taking new technological initiatives, and innovations incommercialisation of services like RO-RO (Roll On - Roll Off).Scope exists in IR for corporatization/privatisation of many of the non-coreactivities like: hospitals, schools, security services, cleanliness services, printingpresses, and production units where competition from the other sectors in themarket is possible. However, it is much more difficult to corporatise/privatise thecore train running activity of Indian Railways. One approach as suggested by theRakesh Mohan Committee is formation of an Indian Railway Corporation (IRC)managed by the Indian Railway Executive board (IREB) with Government ofIndia setting policy direction. This approach to corporatisation suffers fromfollowing drawbacks:1. The IRC will be a large and unwieldy organization, which will tendtowards bureaucratic ways of functioning as it happens with most of thelarge organizations even in the private sector.2. The aims of decentralized decision-making may not be achieved.This study has revealed that there is another approach which is possible forcorporatisation of IR which can provide for regional autonomy and decentraliseddecision-making. This approach is to convert the existing zones into separatecorporations based on the KRCL model, with Railway Board acting as thecoordinator and regulator. The main challenge in this approach will be to achievecoordination between the different zonal corporations. But this challenge is notinsurmountable as is evident from the smooth train running operations on theKonkan Railway in coordination with the adjacent zonal railways and the RailwayBoard. If it is decided to adopt this approach, then an effective strategy needs to beformulated regarding: whether all the zones should be converted into corporationssimultaneously, or in a phased manner? If they are to be converted in a phasedmanner, then which zones should be taken up first?