Creating a Rail Development Authority for India is among the most significant reforms to an infrastructure system undertaken by the government. The railways connect the country’s far corners and act as a driver of the economy.
High rates of economic growth have raised the demand for travel, but this remains largely unmet. The popular aspiration is for a modern system that offers high-quality travel with low risk of accidents, while industry wants smooth freight transfer.
An independent, empowered regulator could be the paradigm shift that is needed. The proposed Authority would have to ensure that the resources of the system are optimally utilised, overcoming existing inefficiencies that arise from the fact that policy, regulatory and management functions of the railways are intertwined.
As the National Transport Development Policy Committee noted in 2014, the centralisation of all functions in the Railway Board has proved detrimental to the organisation’s growth, particularly at a time when there is a need for massive investment in infrastructure for 7%-plus GDP growth.
Conversely, robust economic expansion further raises the demand for railway services. To reconcile this, the regulator has to identify sectors that can support higher tariffs and also produce greater volumes of traffic. Such accurate interventions are critical if the trend of declining rates of growth in railway freight revenues and volumes, which set in during 2011-12, is to be reversed.
One of the big challenges before the Centre is to facilitate higher non-budgetary investment in the railways.
The Bibek Debroy Committee found the private sector is discouraged from participating more effectively due to a monopolistic framework. Coming up with a system that de-risks private investment and creates a level playing field are among the major challenges before the Rail Development Authority.
In the area of passenger services, this offers several possibilities; the railways cater to some 23 million passengers a day in a network of about 8,000 stations. The experience of consumers in cities shows that use of information technology to deliver traditional services can lead to higher levels of efficiency and lower costs, besides adding jobs.
While regulation of tariffs matching the quality of travel can help raise revenues, the system should be able to move both people and freight faster in order to grow. Inducting faster, more comfortable trains on 500 km-plus inter-city routes would attract new traffic, and help operate cheaper passenger trains to interior areas, as part of the government’s social obligation. Technology upgrades are essential to raise carrying capacity, service frequency and speeds.
Rail reform is complex and what was undertaken in Europe during the 1990s, separating infrastructure from operations, is an interesting model: sequential measures achieved sustainable results, rather than a package of changes introduced at once.
About Rail Development Authority
It will act within parameters of Railway Act, 1989 and undertake the following broad functions: tariff determination, ensuring fair play and level playing field for stakeholder investment in Railways, setting efficiency and performance standards, dissemination of information.
The authority will set tariff based on cost recovery principle and “what the traffic can bear.” All the direct and indirect costs such as pension liabilities, debt servicing, replacements and renewals along with productivity parameters, market driven demand and supply forces and future investments will be considered by the regulator before setting tariffs.
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Steve Ovett, the famous British middle-distance athlete, won the 800-metres gold medal at the Moscow Olympics of 1980. Just a few days later, he was about to win a 5,000-metres race at London’s Crystal Palace. Known for his burst of acceleration on the home stretch, he had supreme confidence in his ability to out-sprint rivals. With the final 100 metres remaining,
[wptelegram-join-channel link=”https://t.me/s/upsctree” text=”Join @upsctree on Telegram”]Ovett waved to the crowd and raised a hand in triumph. But he had celebrated a bit too early. At the finishing line, Ireland’s John Treacy edged past Ovett. For those few moments, Ovett had lost his sense of reality and ignored the possibility of a negative event.
This analogy works well for the India story and our policy failures , including during the ongoing covid pandemic. While we have never been as well prepared or had significant successes in terms of growth stability as Ovett did in his illustrious running career, we tend to celebrate too early. Indeed, we have done so many times before.
It is as if we’re convinced that India is destined for greater heights, come what may, and so we never run through the finish line. Do we and our policymakers suffer from a collective optimism bias, which, as the Nobel Prize winner Daniel Kahneman once wrote, “may well be the most significant of the cognitive biases”? The optimism bias arises from mistaken beliefs which form expectations that are better than the reality. It makes us underestimate chances of a negative outcome and ignore warnings repeatedly.
The Indian economy had a dream run for five years from 2003-04 to 2007-08, with an average annual growth rate of around 9%. Many believed that India was on its way to clocking consistent double-digit growth and comparisons with China were rife. It was conveniently overlooked that this output expansion had come mainly came from a few sectors: automobiles, telecom and business services.
Indians were made to believe that we could sprint without high-quality education, healthcare, infrastructure or banking sectors, which form the backbone of any stable economy. The plan was to build them as we went along, but then in the euphoria of short-term success, it got lost.
India’s exports of goods grew from $20 billion in 1990-91 to over $310 billion in 2019-20. Looking at these absolute figures it would seem as if India has arrived on the world stage. However, India’s share of global trade has moved up only marginally. Even now, the country accounts for less than 2% of the world’s goods exports.
More importantly, hidden behind this performance was the role played by one sector that should have never made it to India’s list of exports—refined petroleum. The share of refined petroleum exports in India’s goods exports increased from 1.4% in 1996-97 to over 18% in 2011-12.
An import-intensive sector with low labour intensity, exports of refined petroleum zoomed because of the then policy regime of a retail price ceiling on petroleum products in the domestic market. While we have done well in the export of services, our share is still less than 4% of world exports.
India seemed to emerge from the 2008 global financial crisis relatively unscathed. But, a temporary demand push had played a role in the revival—the incomes of many households, both rural and urban, had shot up. Fiscal stimulus to the rural economy and implementation of the Sixth Pay Commission scales had led to the salaries of around 20% of organized-sector employees jumping up. We celebrated, but once again, neither did we resolve the crisis brewing elsewhere in India’s banking sector, nor did we improve our capacity for healthcare or quality education.
Employment saw little economy-wide growth in our boom years. Manufacturing jobs, if anything, shrank. But we continued to celebrate. Youth flocked to low-productivity service-sector jobs, such as those in hotels and restaurants, security and other services. The dependence on such jobs on one hand and high-skilled services on the other was bound to make Indian society more unequal.
And then, there is agriculture, an elephant in the room. If and when farm-sector reforms get implemented, celebrations would once again be premature. The vast majority of India’s farmers have small plots of land, and though these farms are at least as productive as larger ones, net absolute incomes from small plots can only be meagre.
A further rise in farm productivity and consequent increase in supply, if not matched by a demand rise, especially with access to export markets, would result in downward pressure on market prices for farm produce and a further decline in the net incomes of small farmers.
We should learn from what John Treacy did right. He didn’t give up, and pushed for the finish line like it was his only chance at winning. Treacy had years of long-distance practice. The same goes for our economy. A long grind is required to build up its base before we can win and celebrate. And Ovett did not blame anyone for his loss. We play the blame game. Everyone else, right from China and the US to ‘greedy corporates’, seems to be responsible for our failures.
We have lowered absolute poverty levels and had technology-based successes like Aadhaar and digital access to public services. But there are no short cuts to good quality and adequate healthcare and education services. We must remain optimistic but stay firmly away from the optimism bias.
In the end, it is not about how we start, but how we finish. The disastrous second wave of covid and our inability to manage it is a ghastly reminder of this fact.