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Insights into Editorial: Why has Indian Railways opened doors for private players?

Context: Indian Railways begins process for entry of ‘private trains’:

Indian Railways has launched the process of opening up train operations to private entities on 109 origin destination (OD) pairs of routes using 151 modern trains.

  1. It has invited Request for Qualifications proposals, for scrutiny of vendor capabilities, from those who can bring modern trains for operations on existing rail infrastructure.
  2. At present, scheduled passenger train services remain paralysed during the COVID-19 pandemic, and various railways have been running only specials such as those for workers.
  3. Yet, the Railway Board has moved ahead with a long-pending plan, setting a tentative schedule for private train operations, expected to begin in 2023 and in 12 clusters.
  4. The IRCTC, in which the government is the majority shareholder, was given pilot Tejas operations in the New Delhi-Lucknow, and Mumbai-Ahmedabad sectors. These were the first trains allowed to be run by a ‘non-Railway’ operator.
  5. The present move takes another step towards competing passenger train operations, bringing new-generation trains and attracting investments of an estimated Rs.30,000 crore.

What is the background to the decision?

Several committees have gone into the expansion and the modernisation of Indian Railways.

  1. In 2015, the expert panel chaired by Bibek Debroy constituted by the Ministry of Railways a year earlier, recommended that the way forward for the railways was “liberalisation and not privatisation” in order to allow entry of new operators “to encourage growth and improve services.”
  2. It also made it clear that a regulatory mechanism was a prerequisite to promote healthy competition and protect the interests of all stakeholders.
  3. The present invitation for private operators to submit qualification bids for 151 trains would be, in the assessment of the Railway Board, only for a fraction of the total train operations 5% operated by Indian Railways.
  4. The overall objective, however, is to introduce a new train travel experience for passengers who are used to travelling by aircraft and air-conditioned buses.
  5. From a passenger perspective, there is a need for more train services, particularly between big cities.
  6. The Railway Board says 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.
  7. Without an expansion, and with growth of road travel, the share of the Railways would steadily decline in coming years.

Bibek Debroy Committee:

The Railway Board had constituted a Committee for mobilization of resources for major railway projects and restructuring of Railway Ministry and Railway Board. (Chair: Mr. Bibek Debroy).

The Committee submitted its final report in June 2015, which has favoured privatisation of rolling stock: Wagons and Coaches.

Committee has looked at the railway restructuring experiences from multiple countries, including Japan, the United Kingdom, Germany, Sweden, Australia and USA.

It focussed on the British experiment to achieve two main aims: changing the institutional structure between the government and the Indian Railways and increasing competition.

It has also recommended amending the Indian Railways Act to allow the private operators to levy tariff.

Committee adds that in case the infrastructure becomes profitable, there is no bar on the government to have its own operator in the interest of competition.

Why is the move significant for Indian Railways?

  1. For the Railways, one of the largest organisations in the country operating not just trains for passengers and freight, but also social institutions such as hospitals and schools, it represents a radical change.
  2. According to data maintained by the World Bank, in 2018 India had 68,443 route kilometres of railways.
  3. It is among the four largest rail networks in the world, along with the United States, China, and Russia, although every kilometre of track in India covers geographical area much less than Germany, Russia, China or Canada, indicating scope for expansion.
  4. An analysis of passenger and freight operations in the Railways, taken note of by the Economic Survey and the erstwhile Planning Commission, showed that a steady shift to other modes of travel for both categories was affecting economic growth: by as much as 4.5% of GDP-equivalent.
  5. 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 ₹2.50.
  6. The Bibek Debroy committee found this significant to take the ‘Make in India’ objective forward.
  7. The panel also noted that passengers were willing to pay more, if they had guaranteed and better quality of travel and ease of access.
  8. The move to augment capacity virtually overnight through private capital in train operations pursues this line of reasoning.

Are private train operations sustainable?

  1. Train services operated by Indian Railways cover several classes of passengers, meeting the social service obligation to connect remote locations, and adopting the philosophy of cross-subsidy for passengers in low-cost trains through higher freight tariffs.
  2. In more recent years, it has focused on revenue generation through dynamic demand-based pricing.
  3. Private operators are not expected to shoulder the burden of universal service norms, and will focus on revenue.
  4. Even the first IRCTC-run trains have a higher cost of travel between Lucknow and Delhi than a Shatabdi train on the same route that almost matches it for speed.
  5. So private operators would have to raise the level of their offering even higher, to justify higher fares, and attract a segment of the population that is ready to pay for this difference.
  6. The government would have to explain that it has monetised its expensive fixed assets such as track, signalling and stations adequately for the taxpayer, who has paid for them.
  7. The key piece in the scheme is the independent regulator, recommended by expert committees.
  8. Private rail operations can thus be seen as a government-led pilot plan, not a full programme for unbundling of the monolithic Indian Railways, although the more attractive parts are being opened for private exploitation.

Conclusion:

With private trains expected to begin operations by April 2023, the Railways said the move would only benefit travellers by way of confirmed tickets and faster trains. It also allayed fears of higher fares and job losses.

The golden quadrilateral and golden diagonal routes would be fit for running trains at 130 km/hour.

In order to sustain growth, modernisation and efficiency, the Indian Railways must redefine its role and responsibility.

It has to completely reposition its operating role from being a direct service provider to being a supervisor of services

There is only one flip side to the privatisation of railways in India and probably the most important one i.e., subsidised fares.

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, to these very pockets of population.