Small may not always be beautiful, but big is invariably ugly when it comes to the State’s role in the economy and society. China’s railway ministry has long been an example of how bad the big State can be. Once known as the ‘closed empire’, the ministry remained immune to the series of reforms that have shaken the Chinese economy since the restructuring of State-owned enterprises in the 1990s. The result was the perpetuation of a State within a State that existed by its own rules. No wonder that the Chinese railway ministry became a byword for a bloated, inefficient bureaucracy and for corruption. It may not have been entirely his decision, but the dismantling of China’s railway ministry is arguably the best thing that has happened during the 10-year stint of Wen Jiabao, the outgoing prime minister. It may take China years — or decades — to undo the damage the railway ministry had done to rail transportation and to the Chinese economy as a whole. The huge debt it has saddled the economy with will continue to be a drain on other sectors long after the restructuring of the railway operations and their administration.
There are important lessons for India in China’s belated move to reform the railway administration. The Indian railway has striking similarities with its Chinese counterpart. Both have been the biggest State sectors, employing the largest number of people for any public sector organization. Like most other State sector units, the Indian railway has spawned a massive bureaucracy and is hopelessly inefficient. Its finances have been a mess for years, but all attempts to bring in even a semblance of financial discipline are routinely thwarted. Its losses during the current financial year are estimated to be Rs 24,600 crore. But while presenting the railway budget last month, all that the railway minister, Pawan Kumar Bansal, had to offer as a remedy was “austerity and economy in expenditure”. But only radical reforms can save the Indian railway from a worse crisis. A beginning may be made by doing away with the old practice of a separate railway budget. There is no justification for the railway to have its own budget since it can hardly mobilize enough resources on its own and has to depend primarily on the support from the general budget. The ultimate remedy, though, is to privatize the railway so that it can function on economic logic.