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Business Commentary/Ashok Mitra

Privatise railways, and spread anarchy!

With free market economics in full command, the Planning Commission has naturally fallen into disuse. That the Ninth Five-Year Plan has now been completed by the Commission after two-fifths of the plan period is over does not evoke any derision either. The operational word is tedium. The Commission is there, just like a dump of rubbish at some corner of the village common.

But, then, the Commission has now been burdened with a new deputy chairman. The point of installing a new deputy chairman will be lost if the august body does not bestir itself into some activity. A media note has therefore been released encapsulating the supposedly novel thoughts that are gaining currency within the Commission's portals. One principal suggestion the Commission has offered is to extend the scope of privatisation so as to cover the country's railway system.

Private entrepreneurs are not as ignorant of the realities of life as the Planning Commission seemingly is. You can put full-page advertisements in the leading newspapers of the world, including the Washington Post, The New York Times, Le Monde, La Prensa and the rest; hardly any customer will be around to buy the Indian Railways, or for that matter, any railways in any part of the world.

Railways call for huge and chunky investments but fetch an extremely low rate of return. This has emerged as a global phenomenon. Even the giant of a monopoly such as the Indian Railways is able to register a surplus of only a modest proportion compared to the capital stock that has gone into it. The railway network has in fact survived in this poor country inhabited by poor people only because of heavy cross-subsidisation of passenger fares made possible by hefty levies imposed on the freight of goods.

There is clearly a limit to such cross-subsidisation; if it is pursued beyond a point, the railway system runs the risk of losing the custom of goods traffic to road haulers. Without backup from the State, which has been in a position to influence the cost of road haulage via regulation of excise and other duties, the Indian Railways would have experienced enormous difficulties in balancing its accounts.

The most crucial issue is however the investment that has been sunk into the railways by the government of India in the 100 years preceding Independence. You can be a member of the Planning Commission even if bereft of any knowledge of history.

Daniel Thorner's classic work, Investment in Empire, will be, it can be taken for granted, foreign to the Commission, which is a great pity. Thorner discusses, in meticulous detail, the processes of the step-by-step construction of the Indian Railway system by the British rulers.

It was a costly venture, a time-consuming venture, but the British knew the long-term benefits likely to accrue if investments in the railways were carried on without bothering too much about the short-run problems of funding. A major portion of the surplus squeezed out of the empire was purposely ploughed back into the railways. No private company, be it a Bird or be it a Heilgers, would have dared to come forward in the relevant period with venture capital of the magnitude needed to develop the railways in any part of the country. Given the abysmal poverty of Indians, a fair rate of return on the outlay was out of the question, at least in the initial phases of the experiment.

Successive viceroys and the secretaries general of India chose to take a long view. The model they chiselled to bleed India white depended upon the penetration of transport and communications into the countryside so that raw materials could be bought cheaply and moved with expedition from the country's deep interior and, analogously, finished British industrial products could be transported to every part of the country and sold at high prices, all through the courtesy of the Indian Railways.

The perseverance with investment activity finally paid off, the Indian rail network became a self-reliant institution, and it could even begin to make a contribution to the general Budget. A separate Rail Budget was itself an innovation; it provided proof of the key role the Indian Railways had come to perform in the Indian economy.

In the post-Independence period, the emphasis has been to build around the system the British had set up by recourse to a few strategic devices, such as laying new lines, conversion of narrow gauge to broad gauge line, electrification and dieselisation, and so on. The claim has in fact been posted that the two pillars that have sustained and developed national unity and integrity in the post-freedom phase are Indian Railways and the Life Insurance Corporation of India. The rhetoric is not all that vacuous; the reach of both organisations has been such as to bring the different parts of the country together.

Now it is a new agenda in the wake of a new discourse, that of liberalisation and free market economics. The insurance sector in India is already being opened up to private capital.

The judgment has perhaps also been reached within the Planning Commission that there was little rationale in doing things by halves; the railways might be privatised as well.

The problems in the wake of the attempt to sell off the country's rail system are however likely to be daunting. Private ownership of railways had died out even in the countries of classical free enterprise, for instance, the United Kingdom and the United States. Barring a few exceptions, railways in these countries now happen to be a luxury service for the edification of the very rich who do not mind being soaked. Elsewhere, wherever the railways are in operation, it is because the governments of the countries concerned are anxious to provide a crucial infrastructural service to the community at large.

It would be difficult to sell off the Indian Railways as one integer. The total value, at current market prices, of the capital stock of our rail system -- rolling stock, tracks, land and buildings -- will run into hundreds of billions of rupees. No tycoon will be in the vicinity to assume charge of the burden, especially in the context of the recent general decline in the world economy.

What is still conceivable is the adoption of the standard practice rundown families follow while disposing of their pots and pans. The sale takes place in lots. The Indian Railways could ponder over the prospect of selling a bunch of rolling stock to party A, selling some length of railway tracks to party B, selling real estate around these tracks to party C. There need not be just one single party A or one single party B or one single party C either. Rail property in different parts of the country could be sold to hundreds and thousands of customers in bits and pieces.

It is possible to quote a precedent to go by. At the end of World War II, when chaos descended on the then Burma, every successive hundred meters of railway track, the story goes, was sold to different parties by whoever was in effective power in a particular region of the country. A train could proceed further only after making a compulsory halt at intervals of these one hundred meters and paying up the rental -- may be a thousand kyats -- to the claimants of the franchise.

Rest assured, once the holistic approach sponsored by the Planning Commission and elliptically endorsed by the railway and finance ministers through their budgets this year really takes off, anarchy a la Burma will spread all over the country. That is a denouement which, for all one can conjecture, unites the fundamentalists at home with the would-be investors from overseas, many of whom favour puny-sized underdeveloped economies for the reason that subverting the rulers of small countries is a less onerous task.

The plot is bound to thicken in the course of the next few months. This hapless nation can only wait with bated breath.

Ashok Mitra

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