Corruption by Board’s design
KOLKATA : The Railways have remained the coveted portfolio for key North Indian alliance partners of the NDA and UPA regimes in the decade past, providing an invaluable stage for political grandstanding. The last decade has also seen the Railways retain their unofficial tag of being the most corrupt department after Defense, in terms of volume, though Telecom and Mining appear desperate to join the party. Windfall profits for supplier cartels, kickbacks for bureaucrats, and enormous loss to the public exchequer have been routine. There has, however, been one notable design to the loot.
The Research Design and Standards Organisation (RDSO) has periodically introduced new or upgraded specifications for Railway parts. These new or modified designs usually represent an improvement in technology or increased safety. However, as a 2004 CAG report shows, the Railway Board undertakes no independent cost analysis when a new product replaces an old one. As a result, select firms approved to supply the new product gang-up, start quoting exorbitant prices, and make a killing. In time, other approved firms crowd the party, the cartel becomes unwieldy, prices fall, profits stabilize, and it is time for another design modification.
According to sources, not only do suppliers fix prices amongst themselves, they also find ways to fix the introduction of new modifications in collusion with Railway Board and RDSO officers. It takes as few as 3-4 senior bureaucrats to introduce a new over-priced product for chosen firms to supply, which the entire Railways then buys in enormous quantities resulting in crores of rupees in profits and kickbacks. Examples of this racket abound.
Rubber side bearer pads have seen three designs in less than 2 years. First the Railway Board asked all zones to replace metal bonded rubber pads with vulcanite pads. The three approved suppliers began charging four times the price, making windfall profits due to enormous purchases. In a little over a year, the Board recommended vulcanite pads be replaced by polyurethane pads, and again three Lucknow-based firms ~ Aryan Exporters, Avadh Industries, and Prag Industries ~ began to feast, this time charging over 10 times the original pad price. What used to cost a little over Rs 300, now costs around Rs. 4,000.
Given that the Railways used to purchase 8 lakh pads annually, the additional cost has already run into hundreds of crore of rupees and counting. Tests and complaints in all three pads show similarities. RDSO admits “no significant difference between the performance of polyurethane pads and other side bearer pads”, the latest pad is not being purchased as if it were any longer lasting, but no justification has been offered by the Board for this 10-times costlier pad.
Coach vestibules present another example. A design change reduced the number of approved suppliers from seven to one. This one initial supplier set rates for the new vestibule that rocketed from Rs. 9,000 to upwards of Rs. 30,000, where they still hover. The Railway Board has offered no justification why the modified vestibule merits thrice the original price.
Yet another item where this racket is awaiting discovery is in the part called phenolic brake gear bush. The older nylon bush has 22 primary and 9 secondary approved suppliers. But, the newly specified phenolic bush, which is supposed to improve oscillation, has only one Kolkata-based supplier at present, Synthetic Moulders Ltd. All 'open' tender contracts for phenolic bushes are won by this firm. How is it that the mighty 'nation-builder' could find only one supplier in the whole country for this part? There are dozens of such items where only or two suppliers have been cultivated.
In a February 2007 letter sent to Railway zones for commencing mass purchase of seven upgraded coach items, the Railway Board implicates itself. The letter is infamous within Railways. According to sources, an investigation into how it came into being and what its ramifications have been would uncover anywhere between a Rs 500-1,000 crore racket.
In introducing these items, which include PVC flooring, fire 'worthy' upholstery, and recron, the Board not only does away with independent cost-analysis of the new products as per usual practice. In an unprecedented act, it goes further to suggest an 'approximate cost' for each new item, with the costs set at levels in some cases double what should have been the real market prices. The result: hand-picked companies used this approximation as a floor price in bids and generated windfall profits.
The price of the first item on the list, vinyl flooring sheets, is approximated by the Board at near Rs. 17,000 for a specific unit. After two years of extra-ordinary robbery, when one stores manager was able to break the vinyl flooring sheet cartel in May last year by negotiating strongly and retendering, the price at which purchases were made stood below Rs. 9,000, at half the Board's 'approximate cost'. In suggesting the costs it did, the Railway Board removed the final obstacle that on rare occasions prevents and usually only delays chosen suppliers from making merry.
Zonal tender committee meeting minutes detail struggles to justify the prices being quoted by an item's approved suppliers. This letter provided the green signal to stores managers to shut their eyes and sign away the loot. The prices crony suppliers want, they will get, even by official high-level sanction. The last decade has not witnessed a people's Railways, but a well-designed cartel Raj.
Source The Statesman, Kolkata
