Principal economic advisor Sanjeev Sanyal has recommended the merger of Ircon International with Rail Vikas Nigam; Braithwaite and Company with Rail India Technical and Economic Services (RITES); Centre for Railway Information and Systems (CRIS) and RailTel with Indian Railway Catering and Tourism Corporation (IRCTC).
The massive restructuring of Indian Railways proposed by principal economic advisor Sanjeev Sanyal has the potential to create monopolies that will command great valuations when offered for sale in parts or whole, experts say.
In a report titled Rationalisation of Government Bodies, Proposal for Ministry of Railways, Sanyal recommended the merger of Ircon International with Rail Vikas Nigam; Braithwaite and Company with Rail India Technical and Economic Services (RITES); Centre for Railway Information and Systems (CRIS) and RailTel with Indian Railway Catering and Tourism Corporation (IRCTC).
Sanyal cited the creation of synergies and the removal of duplication that would result from the exercise.
The report called for the winding up of other public sector enterprises like the Central Organisation for Railway Electrification (CORE), the Central Organisation For Modernisation of Workshops (COFMOW) and the Indian Railways Organisation for Alternate Fuels (IROAF).
The cabinet secretariat has sent the report to Railway Board Chairman Suneet Sharma, asking him to send an action taken report on it the first week of every month.
“The proposal of mergers in the railway sector is good from the perspective of raising funds. The trend shows that the Government is now looking to create similar domain-based monopolies to boost valuation. The market loves monopolies,” said Subodh Jain, former member-engineering, Railway Board.
“After the struggle to monetise Air India, the learning is to monetise a PSU before it becomes defunct. This government has probably realised that it makes more sense to monetise public sector units while they are still profit-making. They can be navratnas or miniratnas” added Jain.
“The underlying trend (in the report) is to merge railway public sector units (PSUs) across the board in a common domain so that they are valued well,” said another former top railway official, who spoke on condition of anonymity.
To be sure, Sanyal’s report, a copy of which has been reviewed by this writer, doesn’t mention the rationale of enhancing valuations or the sale anywhere, and just builds a case for increasing efficiencies.
RVNL-Ircon
Sanyal’s report proposed that RVNL be merged with Ircon because both are engaged in the construction of railway infrastructure.
Ircon specialises in the construction of railways, highways and mass rapid transit systems. RVNL implements projects related to the creation and augmentation of the capacity of rail infrastructure on a fast-track basis.
While the former bids for private contracts and has a significant international presence, RVNL functions as a subcontractor of Indian Railways and has no borrowing power of its own.
“RVNL and Ircon are dependent on railway projects. At present, usually, RVNL and Ircon do not compete with each other – by virtue of being offshoots of Indian Railways under the same management,” said Jain.
Until IRCON remains the main infrastructure arm of Indian Railways, why would the private sector be interested in buying RVNL, asked another expert? That may be one reason for the recommendation that RVNL is folded into Ircon, he added.
Braithwaite-Rites
Again, citing the similar nature of work they are engaged in, the report recommended that Braithwaite be taken over by RITES.
RITES is a consulting firm in the transport sector that also exports rolling stock, and inspects materials procured by Railways. Braithwaite also operates in the field of rolling stock, manufacturing wagons and outsourcing to third parties.
Braithwaite turned sick in 1992 but things have changed for the better for the unit in the past few years. Net sales of Braithwaite more than trebled in four years –to Rs 609.6 crore (in fiscal 2021 despite the pandemic) from Rs 130 crore (in fiscal 2018); profit grew to Rs 25.86 crore (in fiscal 2021) from Rs 2.6 crore (fiscal 2018).
“The merger might lower the focus of Braithwaite, which has just turned around and is doing well now. Braithwaite has to compete in tenders to get business and should be allowed to flourish independently instead of making it a part of RITES,” said a railway official.
Railtel-CRIS-IRCTC
The report calls for merging all IT related units, citing natural synergies. Indian Railways consists of three organisations working on IT systems–IRCTC, RailTel and CRIS.
CRIS was set up as an autonomous society to develop railways software capacity –IT system for passenger ticketing, freight invoicing, freight and passenger train operations, management of train crews and fixed and rolling assets (engines, wagons, coaches) in the railways.
IRCTC’s core activity is internet ticketing. IRCTC also manages hospitality and catering services at railway stations, trains and promotes tourism. IRCTC’s passenger reservation system is operated by CRIS, for which IRCTC and Railways pay CRIS, says the report.
RailTel is one of the largest telecom service providers in the country that works on modernising operations and safety systems through an optic fibre network along railway tracks.
“There exist significant overlaps in the functions of these three organisations. But all three organisations work in silos causing technology adoption in the railways to suffer,” says the report.
The report recommended that CRIS be wound up after handing over all its work to IRCTC and RailTel be merged with IRCTC. Earlier, the Bibek Debroy Committee on Restructuring Railways (2015) had also recommended the integration of all IT initiatives of Railways, it noted.
“Monetising IRCTC does not make sense if CRIS – the underlying ticketing software — is within the Indian Railways fold because Indian Railways can then create a competitor. So, the merger of IRCTC and CRIS will create the best valuation,” added Jain.
That said, a second Railway official requesting anonymity explained why CRIS should not be separated from the national transporter’s fold.
“CRIS holds all of core railway data and thus it might be a security concern if tomorrow an external stakeholder owns it. Railways take most of their business decisions based on analysis of data available with CRIS. Also, personal data related to passengers are with CRIS. At present, Railway Board plugs into CRIS for various kinds of intelligence, quickly develops apps based on needs, among others. All such activities will become difficult if CRIS stops being a part of Railways,” this official said.
Sanyal report doesn’t explicitly mention the possibility of any stake sale in IRCTC, a publicly listed PSU.
Winding up of CORE, COFMOW, IROAF
CORE was established with the prime objective of electrification of Railway tracks. Once the annual estimate of electrification of tracks is provided by respective zones, CORE tenders out the electrification projects through contracts.
Considering that the progress of electrification is being monitored by zones, which can do the tendering as well, CORE should be wound up, recommended the report.
It also said COFMOW which was set up to modernise production units and maintain workshops. has lost its relevance.
“With Railway electrification in full swing, there is no need for a separate organisation on alternate fuel (the production of which has not made any significant progress so far)”, said the report, calling for IROAF to be shut down.
Railways closed IROAF early this month. Moneycontrol reported about the reasons for the shutdown on 14 September 14.
Eight production units under one umbrella
“We propose that one CPSE be established for rolling stock and manufacturing of locomotives by bringing eight production units under its fold. This can be done by transferring the assets and deploying the employees of the existing production units to the proposed CPSE in a phased manner,” says the report.
CPSE is short for Central Public Sector Enterprise.
Indian Railways has three coach factories – Integral Coach Factory, Chennai; Rail Coach Factory, Kapurthala; Modern Coach Factory, Rae Bareli, three loco manufacturing units – Chittaranjan Locomotive Works (CLW); Diesel Locomotive Works (DLW), Varanasi; Diesel Loco Modernisation Works, Patiala and two Rail wheel units – Yalahanka, Bengaluru and Bela, Bihar.
Rationalise RLDA AND IRSDC
Rail Land Development Authority [RLDA] is a statutory organisation that works in the space of station development and land monetisation. Indian Railway Station Development Corporation (IRSDC) is a joint venture company between RLDA and Ircon with limited borrowing power.
IRSDC does work on lines of RLDA and was created to leverage regulatory arbitrage, noted the report. However, projects undertaken by IRSDC of station development are not being implemented on a defined timeline and costs, it added. It recommends that one of the two bodies be made the sole functioning entity. The report is currently being discussed within the railway ministry.
