A wake-up call for railway industry

Discussion on deteriorating financial health of Indian Railways(IR) is passé and maybe, even irrelevant. Comptroller & Accountant General(CAG) may go on calling out that IR’s finances are window-dressed and it camouflages the reality by excluding pension payments and other jugglery but the government has made up its mind. It is not a question any more whether the plethora of infrastructure projects make sense in the background of lacklustre performance of IR and the competition it faces from road and air. Surely the government is aware of the financial health but it has gone firm in its belief that rail infrastructure is needed for the country’s base of logistics in the economy as a whole and viewing IR’s financial health in isolation in not important, at least in short term. Large-scale Capex, which has mounted steadily since 2014, almost five times from around 50000 cr. to as much as 2.45 lakh cr., is here to stay.

 

IR has moved at breakneck speed to acquire new rolling stock. This year is going to be a transformational juncture, with far-reaching impacts, what with finalization of IR’s biggest ever contract for acquiring nearly 75000 wagons in three years at approx. Rs 27000 crores and bids called for more than Rs. One lakh cr. for twelve hundred 9000 hp locomotives, eight hundred 12000 hp locomotives, two hundred Vande Bharat equivalent trains, one hundred Aluminium train sets and another hundred Aluminium push-pulls trains for which orders would be placed on non-IR entities, most likely private ones in this fiscal itself. Huge tenders for special wagons and EMUs are reportedly on the way.

 

For once, all the hype on rail sector is accompanied by some determined and firm action. It calls for analysis at various levels. But before that, it is a given that there are going to be spin-off benefits of this money being ploughed into the rail sector in respect of revitalizing key sectors like Steel, Cement, Aluminium and generating employment.

 

Analysis and reviews will continue on rail finances and the roadmap for corporatization and privatization. Meanwhile, this is seemingly an elegant way of infusing technology & bringing private participation, even while proclaiming that IR would not be privatized, killing many birds with one stone. Since I always suggest that a sensible move forward would be to have a judicious mix of public and private  involvement, I would see it as a positive move.

 

What I would briefly talk about today is how these changes are poised to shake the existing railway equipment and component suppliers out of their smug comfort zones to compete and improve quality as the private rolling stock majors would not be saddled with government procurement rigmarole. One caveat, I always say that the public procurement policies are not disablers but enablers (readers with time can go through my two blogs on the subject given below).

Blogs references:

 

http://anindecisiveindian.blogspot.com/2022/06/public-procurement-and-cartelization.html

 

http://anindecisiveindian.blogspot.com/2019/03/train-18-series-part-19.html

A majority of those in government babudom, however, are ambivalent, unwilling to stick to their guns and failing to call a spade a spade. Talking of IR, its public procurement therefore has, inter alia, innumerable ills, and that for critical equipment and components, with situation for common non-critical items being even worse; to quote a few:

 

· Indiscriminate  ordering  on  development sources ultimately leading to a long list of approved vendors with capacities far in excess of IR’s requirement and the subsequent counterproductive cut-throat price war, which in turn, may look like a good price deal but leads to cutting corners and poor quality. In many cases, it leads to cartelization, which may be like a last resort to maintain the quality but the practice itself is undeniably unhealthy.  

· Undue   stress   on   inspections,  tests  and  audits whereas such measures are confirmatory regimes which cannot inculcate inherently-strong consciousness about quality; quality cannot be built in by inspection.

· Disconnect between IR and its suppliers and absence of a spirit of long-term partnership and empathy. Liquidated Damages are imposed on good and bad suppliers alike as if it was a means of profiteering; since certain rules have been prescribed, officers see no premium in using any judgment.

· No  robust  system of  costing  and  the only benchmark is the Last Purchase Price (LPR).

 

Production Units are the biggest purchasers of railway equipment and components and once a lot of their products would be built by private rolling stock majors, albeit in their premises, the product mix would change drastically and procurement of stores from entrenched vendors shall taper off due to diminishing production of conventional rolling stock manufactured at present. The system of procurement would change drastically and product costing and quality will become paramount. Vendors would need to have certifications like International Railway Industry Standard(IRIS), be amenable to a smart, digital and connected progress with Industry 4.0 (the fourth generation of industrial activity) and its attendant automation leading to efficiency, capacity and cost benefits, robust designs of products which are relatively maintenance-free or tractable with condition monitoring tools to reduce unplanned maintenance and integration with an effective supply chain web to reduce production hold-ups and inventory costs.

 

The existing railway manufacturers must be alive to the changing scenarios or they run the risk of getting run over by the sweeping changes; this is what happened when diesel locomotive production was halted suddenly and many diesel component suppliers went under.

 

A wake-up call for the established manufacturers in the rail sector as they would no longer be dug in! At the same time, a great opportunity for the capable among exiting ones to diversify and expand and new good ones to enter, and as for poor pretenders, they should devise a strategy to vacate the sector.

 

Yes, that is the hope but who knows for sure? Camillo in The Winter’s Tale, advises Perdita and Prince Florizel to flee with him to a welcoming court, dissuading them from running away by sea to wherever the wind might take them. What the lovers did is immaterial but a glimpse of them setting sails for shores that lay undiscovered is very fascinating and such a fascinating glimpse has been afforded to us:

 

A course more promising,

Than a wild dedication of yourselves

To unpathed waters, undreamed shores…

 

Or, may I add, all good men connected with railways in India should look ahead with the help of Allama Iqbal:

 

Sitāroñ se aage jahāñ aur bhī haiñ

abhī ishq ke imtihāñ aur bhī haiñ

(There is world beyond the stars and many inquests of love that I still have to go through.)

…