Lalu and other accidental reformers

One of the major miracles of the UPA regime has been the dramatic turnaround in the fortunes of the railways. Lalu Prasad, the man credited for this transformation, boasted last week that he had delivered a surplus of Rs 90,000 crore over 5 years in an enterprise that was heading towards bankruptcy.

How did Lalu, the plunderer of Bihar, become Lalu, the reformer, on whom case studies are being written by international B-schools? A new book, Bankruptcy to Billions, by Sudhir Kumar, the man who helped Lalu put the railways back on track, says it was done by ignoring textbook remedies. “We decided on a strategy in which there was no downsizing, but rightsizing, no disinvestment but investment,” he said.

The use of jargon to describe a turnaround always puts my back up. Why make the simple sound complex? I suspect that Kumar succeeded by doing exactly the same textbook things he claims he didn’t do. Is customer-centricity not in the textbooks? Is investment the opposite of disinvestment? Disinvestment merely signals a change in ownership, not a withdrawal of assets from running enterprises.

Kumar’s success strategy can be summed up in three words: flog the assets. He speeded up wagon movement, made trains longer and heavier, and reduced the time wagons spent in the yard for health checks. The railways already had the infrastructure; all Kumar needed to do was leverage it for higher turnover. Simple economics. Nothing out of the textbook so far.

A big part of the profits jump came from Lalu’s devious mind. When he found that shippers were overloading railway wagons by bribing officials, he decided to charge for it. What was illegal — overloading — was made legal. So if you want to credit Lalu for the railways turnaround, here’s what you should do it for. He took the political risks needed to make trains heavier and longer, a decision which could still recoil if tracks are not replaced quickly and accidents increase.

The rest is pure luck. The changes were made just when the Indian economy was on the cusp of a boom. As freight traffic soared, Lalu hit the jackpot. Nitish Kumar did not have that luck, as the economy was struggling during 1999-2003. It was only in the last year of the NDA government, 2003-04, that the economy rebounded.

There are reformers and reformers. Whether they are actually recognised as reformers or not depends on whether they happened to be at the right place at the right time. Rajiv Gandhi had a steamroller majority in Parliament, but never managed anything beyond minor economic reforms. Manmohan Singh happened to be the finance minister when India was externally bankrupt in 1992.

In that crisis situation, anybody would have had to reform to obtain IMF funding. His unlucky predecessor — Yashwant Sinha — tried the same thing, but his minority government led by Chandra Shekhar was knocked off its perch even before it could present a budget. Manmohan Singh, who followed him, benefited by having Narasimha Rao backing him during the initial years of reforms, and thus earned the title of reformer. But look where he stands now.

As prime minister in a coalition government, his room for manoeuvre was limited. All he and his finance minister have been doing is spend, spend and spend. Luckily for them, the economic boom till 2008 bailed them out, as revenues were buoyant. Now that the fizz has gone out, they will be shown up for what they are: fair-weather reformers.

The same goes for the other reformers. Dayanidhi Maran was widely seen as shepherding the telecom revolution, but the seeds were laid by the original reformer, Arun Shourie. As telecom minister in the Vajpayee government, Shourie extricated the industry from the legal mess created by predecessors Ram Vilas Paswan and Pramod Mahajan, who had allowed a Reliance entry into mobile telephony through the dubious WLL (wireless in local loop) route, using a basic telephony licence.

It took Shourie to sort out the legal issues, and create the right conditions for a level playing field. The boom followed. It was also Shourie who started the process of disinvestment, but he did it when the markets were down — and was roundly condemned for selling the family silver at firesale prices. Real reformers often have to take it in the shin when fate works against them.

The moral is simple: reform means making tough political choices. When the conditions are right, almost anyone with commonsense can do the right things. When they are not, only the courageous can do it. India’s reformers are largely accidental reformers.