PRIVATISATION OF RAILWAYS

IN NEWS:

• India’s first private train under the Bharat Gaurav scheme has been flagged off from Coimbatore. This could pave way for more privatisation moves in running of both cargo and passenger trains. 

INDIAN RAILWAYS:

• Indian Railways is the country’s largest transporter and employer. It has a network of 70,000 km and 8,500 stations spanning across the country, carrying over 8 billion passengers and 1.16 billion tons of freight annually.
• Indian Railways is the 4th largest network by size and the 8th largest employer in the world.
• Administrative structure of railways:
  • The Railways is headed by a seven-member Railway Board.
  • The country is divided into 18 railway zones, headed by General Managers who report to the Railway Board. South Coast Railway Zone is the most recently formed zone (2019).
  • It also owns various subsidiaries related to rail transport, such as:
    • IRFC, RITES, IRCON (Financing, construction and project implementation)
    • IRCTC (Catering and tourism)
    • CRIS, RCIL (Passenger and freight train operation)
    • DFCCIL, PRCL (Rail infrastructure)
    • KRCL, CONCOR (Passenger and freight train operations)
    • Integrated Coach factories and Locomotive units across the country

• Railways is financed through:
  1. Its own internal resources
  2. Budgetary support from the central government
  3. Extra budgetary resources such as borrowings, public private partnerships, and foreign direct investment. 
• Railways’ working expenses (salaries, pension etc.) are met through its internal resources.  Capital expenditure is financed through borrowings, budgetary support from central government and Railways’ own internal resources.

BACKGROUND OF RAILWAY PRIVATISATION:

• Private entities have had limited role in the Indian Rail industry so far. PPP models are used to attract investments in areas such as station development. Private players are also incorporated to run container trains and food catering services.
• Sam Pitroda Committee report, 2011:
  • It had recommended attracting private investment in various areas of railways such as stations & terminals, elevated rail corridors, high-speed rails, and private freight terminals, leasing of wagons, loco & coach manufacturing units, and so on.
• Bibek Debroy Committee on Restructuring of Indian Railways
  • It made some key recommendations on privatization and railway reforms. They include:
    • Encourage Private entry: in running both freight and passenger trains in competition with Indian railways
    • Railway Regulatory Authority of India (RRAI): Establishment of an independent regulator to ensure fair and open access, establish tariffs and adjudicate disputes.
    • Indian Railway Manufacturing Company: Establishment of a government SPV known as the IRMC to manage all the production units.
• Ministry of Railways’ Request for Qualifications (RFQ) in 2020
  • Ministry of Railways had invited Request for Qualifications (RFQ) in 2020, for private participation in operation of passenger train services over 12 Clusters comprising for more than 150 Origin Destination pair of routes through introduction of 151 modern Trains.

BHARAT GAURAV SCHEME:

• In November 2021, Indian Railways allowed private players to run theme-based Bharat Gaurav trains to showcase India’s rich cultural heritage and historical places to the people.
• How it works?
  • A private operator can lease trains from the Railways to run on a theme-based circuit as a special tourism package.
  • The operator has the freedom to decide the route, redesign interiors, the halts, the services provided and, most importantly, the tariff. The service providers are also given the naming rights, third party advertisements rights and branding rights.
  • There are 190 trains available for the scheme. The service provider can take custody of the trains for a minimum period of two years and a maximum period of up to the residual life of the coaches.
• Significance of the scheme:
  • Helps to showcase the rich cultural heritage of the country and thereby promote the tourism Industry.
  • The scheme allows private players with domain knowledge in the tourism sector to run special trains. This was hitherto taken care of by the IRCTC.
  • The Railways will get an incremental revenue from a new stream of business.

ARGUMENTS FAVOURING PRIVATE PARTICIPATION IN RAILWAYS:

• To revamp the Railways:
  • Rakesh Mohan Committee had noted that Railways has fallen into a vicious cycle of under investment, misallocation of scarce resources, increasing indebtedness, poor customer service and rapidly deteriorating economics. Here, more players in the railways could help to ensure competitive pricing, improved quality and better choices for travellers.
• To meet the growing demand:
  • According to Railway Board, five crore intending passengers could not be accommodated during 2019-20 for want of capacity, and there was 13.3% travel demand in excess of supply during summer and festival seasons.
  • With increasing urbanisation and rising income, the demand is expected to rise and to meet the same, more service providers are needed in the Railways.  
• Enhance infrastructure:
  • Given that the capital expenditure outlays of Railways are around Rs. 1.5 to 1.6 lakh crores per annum, completing even all sanctioned projects would take decades. To keep pace with the modernisation of its infrastructure and services, Railways need private sector resources.
• To mobilize resources:
  • According to estimates, railway infrastructure will need an investment of Rs. 50 trillion between 2018 and 2030. Such an amount cannot be met through government sources alone and need private contributions as well.
• To reduce political interference:
  • Indian Railways has often been used as a tool for political patronage, especially during poll years. Due to this, several economically inefficient initiatives and projects were established in the past. Privatisation can potentially reduce this.
• To ensure better rail safety:
  • An accident can hamper the image of a private entity and thereby erode their profits. Thus, private entities will be extra cautious in ensuring rail safety, which can help improve the safety standards in India.
• Loss of passengers to air traffic:
  • Between 2013 and 2018, reserved passenger traffic on Indian Railways grew at less than 5%, on average compared to a 13% growth in air traffic during the same period. Also, Railways’ share in the transportation of surface freight has declined from 86.2 % in 1950-51 to mere 18 % in 2020.
  • To counter this declining trend and compete with Airways, railways need quality service delivery.
• Better Innovation:
  • Private participation can lead to the infusion of modern corporate practices, technological infusions and capacity building within Indian railways.
  • For instance, Tejas trains have adopted the baggage pickup services used in Shinkansen trains of Japan, where luggage are picked up by service providers and left at the destination of the passenger’s choice, enabling the passengers to travel hassle free.
• Revenue for government:
  • Through privatisation, government can earn valuable revenue, which can help bridge the revenue deficit and attain the USD 5 trillion economy.
  • This will also help improve India’s credit rating, which will help improve foreign investments into the country.
  • It also helps government to move from an active market player to a regulator.
• To improve the overall economic growth:
  • It was estimated that a one rupee push in the railway sector would have a forward linkage effect of increasing output in other sectors by Rs.2.50.
• Higher operating ratio of Indian railways:
  • The Railways recorded an operating ratio of 98.44 per cent in 2017-18 which is the worst in the previous 10 years. Through private participation, railways will be able to improve its operating efficiency. 

ISSUES ASSOCIATED WITH PRIVATIZATION:

• Complexity of railways:
  • It is difficult to privatise a portion of the Railways’ operations (total privatisation is not even being contemplated) as it is strongly vertically integrated.
  • There are but few organisations with manpower as large as the Indian Railways. Hence with the arrival of more players, integration between them becomes a major challenge.
• Hinder the social obligation of railways:
  • As private entities are profit motive, they will raise the existing fares to economically viable levels.
  • This will render the service out of reach for lower income groups. This can hinder the social obligation of railways as the carrier of India’s poor men.
• Absence of independent regulator:
  • The Railway Board has the unique distinction of being the rule maker, operator and the regulator which is a clear conflict of interest as pointed out by Bibek Debroy committee.
• Impact on the economy:
  • Indian Railways is the backbone of India’s economy as it provides low fare transportation to agricultural and industrial trade. Therefore, privatisation of Indian railways can have ripple effect on several components of Indian economy.
• Global experiences are mixed:
  • Rakesh Mohan committee report had pointed out that the international experience on privatising railways showed that it was “exceedingly difficult and controversial”.
  • For instance, when Britain privatized its railways, it offloaded assets including tracks and routes which led to an underinvestment in infrastructure. However, it was highly successful in Japan.
• Concerns over coverage:
  • The present railway system provides nation-wide connectivity irrespective of profit. This would not be possible with privatisation since routes which are less popular will be eliminated, thus having a negative impact on connectivity.
  • It will also render some parts of the country virtually inaccessible and omit them from the process of development.
• Question over accountability:
  • With different components of the system being owned by different entities (Eg: Tracks by Railways and rolling stock by a private player), it would be difficult to hold one accountable in case of any discrepancies or accidents.

WAY FORWARD:

• Create an Independent Regulatory Body
  • It should also create an independent regulatory body to avoid fears to corruption, crony capitalism and ensure a level playing ground for all.
• More clarity:
  • The clearcut delegation of roles and responsibilities between entities, the allocation of deliverables within a predefined timeline and ensuring transparency and accountability in the tender monitoring process is way forward for successful participation of private players.
• Sustainable Pricing:
  • There is a need to revisit the Indian Railways pricing model to make the passenger and freight segments sustainable. The tariffs should be competitive with the cost of road transportation.
• Modernization of Railways:
  • There is a need to implement the recommendations of the Bibek Debroy committee, such as the expansion of Indian Railways manufacturing company, Corporatization of core functions of railways, etc.
• Use Bharath Gaurav as example:  
  • The Bharat Gaurav scheme should be made successful to help people break out of the mindset of fearing private participation in the state-run railways.
  • Also, earnings from this venture should be routed back to improve the overall quality of service in the Indian Railways.

PRACTICE QUESTION:

Q. ‘Indian Railways is a strategic resource for the nation and provides a vital public good’. In the light of this statement assess the merits and demerits of privatizing passenger train services in India?