THE SUNDAY STATESMAN, 27th JUNE2010

Corruption by Board’s design

27 June 2010

Shiv Karan Singh

KOLKATA, 27 JUNE: 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 gangup, 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 34 senior bureaucrats to introduce a new overpriced 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 Lucknowbased 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 10times 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 Kolkatabased
supplier at present, Synthetic Moulders Ltd. All 'open' tender contracts for phenolic bushes are won
by this firm. How is it that the mighty 'nationbuilder' 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 5001,000 crore racket.
In introducing these items, which include PVC flooring, fire 'worthy' upholstery, and recron, the
Board not only does away with independent costanalysis 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:
handpicked 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 extraordinary 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 highlevel
sanction. The last decade has not witnessed a people's Railways, but a welldesigned cartel Raj.