Lalurailonomics: Magic or sleight of hand?

On 17 January, the Lee Kuan Yew School of Public Policy, National University of Singapore, had a date with a New Age management guru, the inimitable Lalu Prasad, on the “Turnaround of Indian Railways”. At the school, Prasad articulated his new vision for Indian Railways—“to be No. 1 railway world over”—and his new leadership mantra: “When the leadership is passionate, it becomes infectious.”
In a Google search, “Lalu Prasad” defeats “Dr Manmohan Singh, Prime Minister of India”; a search for the former returns 764,000 results, while the Prime Minister’s consolation prize is 307,000.

Undoubtedly, it is celebration time for the occupant of the corner room on the second floor of Rail Bhavan for five years, a leader who was at the low ebb of popularity five years ago. It is now curtains for the five years of Lalu magic that brought the railways from the precipice of bust to a position where it has billions in surplus. It is common knowledge that the Rs90,000 crore surplus (before dividend) in five years has transformed the 156-year-old behemoth into a gold mine. I’d like to call this phenomenon the “triumph of Lalurailonomics”.

The dramatic turnaround of the railways does appeal to common sense—a triumph of the concept of marginal cost being substantially lower than the incremental cost of operation. The strategy itself has been so successful that any talk of it is now passe: “Driving unit cost down, reducing tariff and dynamic pricing to increase market share and focus on increasing yield per train rather than increasing tariff per passenger or per tonne, etc.”
Still, there remain naysayers and non-believers in the efficacy and sustainability of Lalurailonomics. Claims and counterclaims make the objective assessment of five-year performance an unenviable task for the commentariat and personal biases are inevitable.
There are seven distinct layers of the evaluation of the railways over the past five years.
First, Prasad inherited an improving railway system from his predecessor, and was further assisted by the dream run of the economy. The revenue of the railways shows a positive elasticity to gross domestic product growth in India. The incoming government will inherit the network at a time when the synchronicity of global recession hits the country and the rate of growth plunges to the vicinity of 6%.
Second, the previous regime left when the railway operating ratio (percentage of income that goes into operations) was 92%. The next government will come in when it is around 90%, bringing the profitability story back to square one. The true picture, however, will be known only over the next three years with progressive finalization of appropriation accounts.
Third, the annual Plan size even at nominal terms has stagnated around Rs3,5000 crore during the five years and the actual performance has been far worse. In the third year of the 11th Plan, the $62.5 billion (Rs3.2 trillion) railway infrastructure plan remains grounded—neither financing nor credible execution strategy is in sight. Completion of the dedicated freight corridor by 2011-12; modern electric and diesel locomotives plants; a coach factory; and station modernization—all look like distant dreams.
Fourth, the railways gets lifetime achievement Oscar for introducing 280 new trains, and extending the run and increasing the frequency of another 188 within five years—and all this over a terminally choked network. Still, passengers have had to put up with rapidly deteriorating sanitary, comfort and punctuality standards.
Fifth, the financial reporting of the department has traditionally lacked transparency with annual budget speeches relegated to being the political statement of the ruling combine. Accounting reforms, an agenda of the 2005-06 budget, have not arrived and budgeting has become further opaque. The future may judge the past five years for further trivializing the rail budget speech to a level that insulted raw human intelligence.
Sixth, the erosion of values and corruption in the system were inherited and not invented by the current administration. Still, not enough was done to tame the beast of corruption and this has eroded the very fabric of the railways.
Finally, posterity will decide whether Prasad created history or will be forgotten by history, whether he was a management or a manage guru, whether he was a servant leader or if he pushed railway servants to deeper servitude, and whether he presided over the story of bust to billions or has merely laid the foundation stone for another big-bang bust for the railways.
The next railway minister faces an uphill task—taking Prasad’s best practices further, vacating the CEO’s position by restoring sanctity, authority and accountability to the chairman of the Railway Board, arresting the decline in values and taming corruption, using more technology to increase efficiency, and concentrating on execution and improving the quality of service.
The new minister would do well to remember that memory is short and Fortune 500 companies with which the railways has been compared in recent times have an average life of less than 30 years.

Akhileshwar Sahay

The author is president, Feedback Ventures.

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