Privatization of Indian Railways: Issue Analysis

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. Several attempts have been made in the past to involve the private sector in various arenas like wagon procurement and leasing, freight trains and container operations, terminals and warehousing facilities, catering services, and other rail infrastructure through schemes framed by the ministry.
But problems like policy uncertainty, absence of a regulator to create a level playing field, the lack of incentives for investors and procedural or operational issues have significantly restricted private sector participation.

However the increasing inefficiency of Indian railways has strengthened the clamor of many experts for privatization of railways. But the question is – should the Government go for complete or partial privatization of railways?

Answer is NO. Railways is the backbone of the country and a most important means for the common people. Thousands of people commute from their native place to their work place on daily basis. Agricultural products could reach the remotest corners of the country only because of railways, thereby helping the farmers to get a good price as well as consumer’s affordable products.

Keeping in view the dependence of the common people on railways, the idea of complete privatization cannot be considered because private players are driven by profit motive which will not be favorable for the people. Therefore private participation can be the key for increasing efficiency rather than privatization.

This opinion is reiterated by the Bibek Debroy Committee, which favored private participation and not privatization of railways.

Debroy committee has looked at the railway restructuring experiences from multiple countries, including Japan, the United Kingdom, Germany, Sweden, Australia and USA. The report says that key lesson which can be learned from UK is to retain the rail-track and infrastructure as a publicly-owned monopoly, while opening up rolling stock operations (wagons, coaches, locomotives etc.) for passengers and freight to the private sector. The report further says that in these countries, which opened up to competition, the entry of competitors lowered prices and led to better services.

Therefore, the Indian railways can be separated into two organizations- one responsible for the track and infrastructure; and another that will operate trains under private hands. Further it has suggested setting up a company which will own the railway infrastructure in form of special purpose vehicle.

Currently the problem is that there is no competition as both maintaining the infrastructure and running the operations are done by the government. Segregation of functions with private participation will increase the competition thereby increasing the efficiency. It will also be profitable for govt. as the government would charge the operator.

Moreover the railways should leverage its properties by allowing private parties to build luxury hotels, restaurants and other facilities, at a time when real estate is very expensive. This will generate revenue as well as help in task of modernization of railways.

Further Indian Railways is locked into non-core segments such as running hospitals and schools for its employees. Handing over of these institutions to private players through a transparent bidding process could significantly cut costs.

Therefore, the Government could bring in private capital or technology to the extent of  improving  the functioning of railways so that Indian Railways can look forward to evolving itself into a more efficient and commercially viable organization.

But this requires the creation of level playing field for private players with an independent regulator – with statutory backing and independent of the railway ministry as well as the Railway Board to maintain transparency.

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