Privatisation of Indian Railways

Indian Railways is the fourth largest in the world in terms of network and eighth largest employer with 1.3 million employees.It is a network of 70,000 km and runs about 21,000 trains, carrying 23 million passengers and 3 million tonnes of freight per day.

The Indian Railways financial health worsened in recent years as its earnings from passenger traffic grew at a slow pace while its expenditure on salaries and pensions multiplied.

Privatisation in railways can help Indian railways to earn profits and increase efficiency. So far, the private sector’s participation in railways has been very less in India, compared to sectors like ports, telecom, electricity, airports and roads.

Privatisation of Indian Railways: Need

• Indian Railways is one of the few government-owned enterprises which is incurring losses year-after-year.
• Indian Railways has not been able to keep pace with modernisation of its infrastructure, equipment, processes and training.
• Freight fares in railways are kept high to cross-subsidise the passenger segment. As a result, railways continue to be a drain on the exchequer, while continuing to provide vital services inefficiently.

Privatisation of Indian Railways: Advantages

• Monetisation: Railways owns large tracts of land along its tracks, in various parts of the country and this can be optimally monetised by inviting private players to invest, build and manage properties that may be developed on these lands.
• Enhanced infrastructure: One of the strongest arguments in support of the privatisation is better infrastructure. It will give an end to some of the serious problems like poor sanitation, poor quality of food, safekeeping around stations, etc.
• Maintenance: Private ownership is synonymous with better maintenance, thus it will reduce the number of accidents, resulting in safe travel and higher monetary savings in the long run.
• Increased efficiency: It is argued that a private firm has pressure from shareholders to perform efficiently. If the firm is inefficient then the firm could be subject to a takeover. A state-owned firm doesn’t have this pressure and so it is easier for them to be inefficient.
• Less political interference:With the presence of private investors in Indian Railways, there would be less political In the current scenario, the majority of public-sector enterprises in India are working under political pressure.

Privatisation of Indian Railways: Concerns

• Hike in ticket fare: With privatisation, there would be a hike in the ticket prices as private operators would seek to earn maximum profit. The poor sections of society will not be able to afford the ticket prices of trains.
• Social cost:Indian Railways provide special concessions to women, old, disabled, defence etc. If railways get privatised then there might be a possibility that such concessions will not be given to the people.
• Accessibility:Indian Railways connects even the remotest parts of India. In case, railways will be run by private operators then there are chances that it will not be running in the remote areas as it will generate less profit from such areas.
• Investment:The biggest concern is the requirement for a huge investment before a single passenger can be carried. Train sets have to be purchased without really knowing how much traffic the service will be able to attract in the face of rising competition from airlines.
• Dispute resolution: The other big concern is the absence of a regulator for resolving disputes. Private companies are unpredictable in their dealings and do not share their governance secrets with the world at large. In such a scenario it would be difficult to pin the accountability on a particular entity, should there be a discrepancy.
• Indian Railways wants the capital and technology without giving up control, while the concessioner   (private investor) wants a far more equal relationship to be moderated by a regulator.
• In the long-run, privatisation of railways may no longer be a low-cost common man’s mode of transport and will be more on the lines of privatised services.
• To please shareholders, the private players may seek to increase short term profits and avoid investing in long term projects. For example, the UK is suffering from a lack of investment in new energy sources; the privatised companies are trying to make use of existing plants rather than invest in new ones.

Privatisation of Indian Railways: Suggestions

• Reduce the risks for the concessioners.Requirement of huge investments in train sets can be eliminated by establishing a company that leases rolling stock not only to concessioners but also to Indian Railways.
• Reduce the period of the concession to around 15 years from 35 bringing in competition.
• Establish a regulator and moderate charges like the amount for the maintenance of tracks and stations.
• A rolling stock company, apart from leasing train sets, can also be the window for bringing in new technology.
  • For starters, IRFC, which is already into leasing rolling stock, can be that company
• Technology transfer calls for the investment of large sums of money and the involvement of universities, research institutes and national laboratories.
  • For example, for developing high-speed train technology, the Chinese involved 25 national first-class key universities, 11 first-class research institutes, and 51 national-level laboratories for research, development and production. India will also need to do something similar.

Global experience in privatising railways services has been mixed. So it is essential to tread with caution. Bibek Debroy committee has suggested privatisation of some operations in Indian railways. In order to keep Indian Railways affordable for the lower strata of the society (post privatisation), the government must offer subsidies and tax incentives to companies that would provide low cost services, similar to low cost airlines. This in the long run would make the railway network more efficient and affordable.