Corporatization of Railway Manufacturing

We have been hearing of the plans of central government to corporatize some state-owned & state-managed organizations in recent years and one of the areas is the Production Units (PUs) of Indian Railways IR); the factories in which IR manufactures its locomotives and trains and some capital spares. There are seven major units and involve some 40000 employees; three units, ICF/Chennai, RCF/Kapurthala and MCF/Rae Bareli, which manufacture coaches, three units, CLW/Chittaranjan,  DLW/Varanasi and DLMW/Patiala, which manufacture locomotives and RWF/Bangalore, which manufactures railway wheels. The idea of disuniting these seven PUs from Indian Railways in as much as the latter is a government organization and transforming them into independent corporations as Public Sector Units (PSUs), albeit within the ambit of the Ministry of Railways, has been mooted from time to time. In 2019, however, after this government came to power again, the idea to hive off these PUs and bring them under one entity, a corporation tentatively called Indian Railways Rolling Stock Company, was floated as part of the 100 days action plan for Indian Railways. It also talked of beginning the corporatization process with the pilot implementation at MCF. More than a year since, it is anybody’s guess as to how far we have progressed. Actually not very far. IR’s own sororal and some would say, subservient, PSU, RITES is doing a study with a big name consultant and there we are. In the beginning of the year, IR had stated that once RITES completes the study, the process would be started in FY 20-21 but post-Covid, understandably, this may not be a priority at present.

The problem is not that we have not progressed far. The problem is that there is a risk that the government, in spite of not having studied the matter properly with a view to taking all the stakeholders along, may, in its characteristic, and by now, all too familiar style, rush in where the stakeholders are still reluctant to tread. Portia says in Shakespeare’s The Merchant of Venice “If to do were as easy as to know what were good to do, chapels had been churches, and poor men’s cottages princes’ palaces.” That is passé in wannabe Atmanirbhar Bharat. We, today are quite capable of doing the unthinkable with the proverbial paradigm changes but would that happen after mulling over various informed opinions? Or would it be a fait accompli without truly knowing what were good to do? 

Restructuring into a corporation means that once, and if, corporatized, these Pus would typically have a board of directors and an independent management but unlike publicly-traded companies, the government would be the company's sole shareholder unless the govt. decides to disinvest, or even privatize, in future and then the shares of the company so formed may even be traded publicly. The stated goal of corporatization of an entity is facilitating to operate it more efficiently even while retaining the ownership the company so formed. Government departments, admittedly, are often inefficient due to internal bureaucracy and their maze of rules, regulations, norms, checks and balances meant for a ministry, not for an enterprise. Considering that IR is not really a true enterprise but has a major social responsibility, this cannot be a simple business case.

The bit about getting rid of the stifling bureaucracy is undoubtedly a positive. But with a caveat. The government must empower it fully to tread the market, including exports, and there should be no shackles. Some of the PSUs, particularly those of the Ministry of Railways, like DFCCIL, had half measures requiring the PSU to run to the ministry even for routine decisions.

Romeo in Romeo and Juliet talks of the light that through yonder window broke and today is the time for us to welcome this light in and dissect what it is made of and how well it can spread far and wide. And so we must keep debating the issue threadbare and examine how it should play out for Indian Railways and indeed the country. I recently held a panel discussion on the subject and I would draw upon the views that emerged.

One the panellists, Mr. Sarabjit Singh, said in this session the objective and road map of the corporatization should be very clear. In the present case, is the objective to make India world-class hub for designing and manufacturing rolling stock? The objective stated by IR was that it was working with a holistic approach to modernize its infrastructure to make its network feasible for running high speed and semi-high speed trains and that by 2024, the work on multi-tracking, which is essentially laying additional tracks on a particular route, would be complete across its network. This would help the national transporter meet additional demand for passenger trains. If this is indeed the objective then it sure is devious and vague as it is interdependent on another exercise, which hardly looks like getting completed soon.

The blue print must have a primary intent to leverage the existing physical and soft assets, i.e., the men, their expertise, the machinery and their capabilities and the overall credibility to get on a path to innovate and develop products that meet the need of the market. The flexibility to adapt quickly to modify the product line is also important because once the users gets the taste of the possibility of litheness in the range of products they purchase, they would demand more of the fresh and not more of the same. Since the PUs are used to an environment of assured orders, they should be given a time frame to reinvent themselves. Let us talk of the coaching PUs, or the would be coaching PSUs. A regimen which envisages three years of assured orders to the extent of 75% of the present level, reduced to 50% in the fourth and fifth years and 25% in sixth and seventh years, should be a fair hand-holding in the incubating and learning process. After seven years, it would be only based on competitive bidding, in competition with other PSUs as well as the private train builders, to each his own and the devil may or may not take the hindmost.

As these PSUs get a feel of what it is like to look at the bottom line, they would be free to free right from the beginning to pitch in the export market. The government may have a system of internal bidding among PSUs to decide the PSU bidder for export but that is a matter of detail; example of CRRC Corporation Limited of China, the umbrella giant holding, inter alia, all their train builders, may be studied and adapted. Today, a GM of a PU is helplessly dependent on the Ministry and the PSU (RITES/IRCON) assigned by it to make a bid for exports; freed of his painstaking process, the new PSUs can certainly do better on their own by examining the export market directly and blaze a trail rooted in their prowess, proficiency and USP.

Are there examples of successful corporatization of government entities in India? Past or ongoing exercises from which we can learn so that this process is meaningful and a win-win for all stakeholders. Yes and No. Yes, as another panelist, Mr. Sushil Luthra stated in the session that one of the best examples of corporatization was creation, or carving out, of MTNL from the ministry-held entity of DoT. In eighties and nineties, this PSU did bring in some dynamism in the gloomy and inefficient working of the department; it did lose out in the end as private companies entered the fray, particularly with mobile telephony but there certainly was a positive impact. No, because, it may be a good example but perhaps not a very good one as the stated objective never was that MTNL would provide better service for a decade or so and then wither away in the face of competition with private companies. I will not even talk about BSNL and Air India which have deflated in the face of the competition; an uncharitable view is that while successive governments did not want to be seen privatizing these flagship corporations, they somehow hoped that these behemoths would melt away one day.

Mr. Luthra also talked about the recent example of Security Printing Minting Corporation of India Limited (SPMCIL), which functioned earlier as a department of the Ministry of Finance. All the mints and presses, which manufactured coins and currency, were corporatized as a single company, SPMCIL. The data available in public domain shows that the labour productivity has gone up more than three times since corporatization in 2006. The parallel with railway PUs, which cater mainly to IR, is striking as these mints and presses had only  the central government as their customer. Even so, there is a difference. Railway PUs would not only compete with each other, there is a significant presence of PSU (BEML, BHEL) and private (Alstom, Bomabrdier) builders as well as PPP entities like GETS (part of Wabtec now) and Alstom whereas SPMCIL perhaps has hardly any domestic competitor. Corporatization of Ordinance factories is on the anvil and the process is ahead of the one for IR and the footprints there should help this exercise.

 Mr. Luthra’s opinion is also that any attitude of keeping important stakeholders like IR officers, key staff and unions would be counter-productive. The exercise must be presented as the first step with meticulously worked out sequencing and staging as otherwise all stakeholders would have the occasion and the excuse to sabotage the exercise; it is not good that currently it is all hush hush with even the key officers blind about it, let alone on-board.

On being asked if we were trying to fix something which was not really broken, Prof. Swapnil Garg, the third panellist, said that it was not about fixing what ain’t broken but about exploitation of full potential. Corporatization would bring in better financial transparency, reduced political interference and greater managerial accountability and there is no gainsaying that these aspects are important from the standpoint of gainful improvement of functioning of these factories. He added that it may not be so important to have a detailed road map drawn up based on informed experience as no such experience is available for such corporatization. IR has a conflict between a desire for administrative control and engineering determinism within its engineering managers. The system has to break on through this conundrum and discover its own way towards corporatization as it moves along; start with one baby step at a time, keep learning from failures and continue improving.

Now, this view is fine but knowing the propensity of the government to looking only after leaping, the emphasis of due deliberations cannot be overstated. Yes, there is no panacea, no definitive recipe for the proposed privatization. Nothing black or white but various shades of gray. The idea is certainly good but the road map and its implementation has to be well thought out. I plan to continue to talk and write, assimilate the emerging views and bring it to the readers periodically. 

(to be continued…)

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The views of the author and the panellists mentioned in the article may also be accessed in the programme Straight Drive at:

https://www.youtube.com/watch?v=OLNdIUAtD2M&feature=youtu.be

You can read more about the mints and SPMCIL at:

https://www.spmcil.com/Interface/AboutUsspmcil.aspx?menue=1