Opportunities and Challenges of Railway Privatization in India

Chitresh Shrivastva

India is a country where railways occupies a prominent position in Indian transportation

arrangement while significantly contributing to the Indian economy through Foreign Direct
Investment helping strengthen the 166-year-old network and improve the passenger and
freight operations. With the fast-paced development in the arena of railway taking across the
global railway network, the developing countries are slowly sinking against the tide of time
as the railways in the developing countries such as India under the pressures of investment
crunches at the state level battle against the odds of infrastructure disintegration, while also
suffering losses on the non-core front. There is a rationale behind such disproportionate
investments under government organisation given the welfare of its employees and rising
variable costs, which under a constrained budget is impossible to regulate. It is at such a
juncture, that the collaborative efforts of the private players become crucial which would help
divide the responsibilities and promote equitable and holistic development, with no absolute
rights over the right of way. The emerging private model of train operations in India is a
testimony to striking a balance between the governmental and corporate obligations in train
operations

Private Rail Routes in India: Not a Smooth Ride

Indian railways post independence has been under the state control, which witnessed some of
the massive transitions in its first three decades, when India embarked on the objectives of
self-sufficiency, enhancing hauling capacity, developing long and short distance high – speed
network, given India’s growth as a member of International Union Railways, which is a
global railway regulatory body established in 1922 to help homogenize railway developments
irrespective of the development status. The existence of Indian railways as state owned
organisation, however, came into question post globalisation, with the first financial crisis of
2001 casting shadow over Indian railways with only Rs.350 crores in its balance making it
difficult to incur its basic operating expenses, resulting in the constitution of Rakesh Mohan
Committee. This was the first committee to expose railways to the idea of corporatization or
privatization on the grounds that in a state run setup in the case of railways, where the social
and operational domains are running parallel, it will virtually be impossible to sustain the
variables of core segment, with greater emphasis on performance and monetary maximisation
to help the railways meet its variable cost.

Subsequent committees such as the Debroy Committee Panel have also pushed for a
corporate approach to help improve productivity and performance in the core and the non –
core sector, thus convincing not only the government, but also the passengers to entrust their
belief in the corporate practices, while also inciting concerns and resistance by the employees
over job security, while o the consumer end the economics of fare structuring and possible
inflation in the fares of trains might not only dwindle the occupancy levels, but also deprive
the railways of the existing market share, which has witnessed significant decline in both
long and short distance passenger traffic with the growing network of roadways and airways
in the current developments, more exclusively with the boom of UDAN scheme posing a
possible challenge to the railways, a strategic privatization of Indian railways will help
improve core and non-core segment.

Some strategic areas which bear the potential of strategic reforms include catering, ticketing
and station modernization. When looked at the passenger segment from the non – core
activity, there has been a growing stress on the Strategic Business Units such as IRCTC,
which have been saddled with responsibilities beyond catering and tourism resulting in
efficiency deficit. In such circumstances, redistribution of human and material resources is a
more feasible solution compared to private participation. A more comprehensive argument
follows in the article as shall be discussed

Treading Cautiously: The UK Perspective of Railway Privatization & Global

Experiences

Indian railways are not new to the experience of privatization, 166 years back the very roots
of railway network expansion are associated with the guarantee system, under which the
railways were handled by the private players entrusted with the responsibility of construction
and operation of trains, where 5% of the profits were paid to the government. The policy,
however, came with an additional provision with an adequate compensation if the company
fails to pay the 5% profits saddling the government with an additional liability of 76 crore
rupees, bringing the guarantee system to a close. As we fast forward to the globalisation
period and move beyond, while India continued to manage the railways through the state
machinery, Britain on the other hand inspired by Margret Thatcher’s famous statement “The
government has no business to be in business” and the privatization process undertaken in
great enthusiasm during the tenure of John Major. Similarly, when looked at America,
America saw the coming of the first railway system without any form of public support,
while Japan saw the restructuring of railways into 7 different railway companies with the aim
of expanding the railway network while also promoting better human resource management.
But there is a catch to the idea of privatization, which India should be cautious of while
executing privatization policy as it decides to implement privatization on 150 trains. One of
the major reasons being the class of passengers who travel by the railways. When looked at
the British scenario, the privatization policy has backfired against the anticipated benefits
with the train fares overshooting that of flights and a gradual shift from the railways to the
airlines, while trains also suffered on the punctuality front and irrational decisions by the
respective railway companies marking the gradual decline of railways

The Indian Scenario

Having discussed the role of railways as the transport of masses, the game of privatization
becomes even more tricky. The foremost point to be kept in mind is the diversity of train
services offered to serve the strata of society which involves premium, ordinary, mail and
express segment. So, the question how do we privatize train routes? It is perhaps to be
understood that over the years various governments adopting multitude of measures to help
improve operating efficiency of railways while also resorting to improving catering and
maintenance operations. What has been common over the years of the BJP regime is the push
for corporatisation to help the railways overcome its social obligations and extra non-core
activities to bring its costs under control. A major attribution to the growing financial distress
is the excessive cross subsidization, which means reduction in passenger fares, while
increasing the freight fares, with the railways recovering 53% of the cost

Over the years the quest for modernisation has been sought to be achieved through increase
in fares through the introduction of flexi fare on the premium trains which helped the railway
improve its financial health, with the railways earning additional 500 crores through the new
policy, while also suffering occupancy on selected routes as the increase for fares failed to
match with the services, which perhaps the government anticipates to improve through Public
Private Partnership and roping in private players to handle rolling stock and baggage
handling facilities, while the railways will help provide the essential human resource of train
engineers and guard for the execution of train operations.

Challenges to Privatization: Understanding India’s First ‘Private’ Train

Throughout the globe, we have observed glaring differences in the global standing of the
railways from the point of developed, developing and underdeveloped countries and this very
difference has brought about the need for a railway diplomacy on the technology and cultural
front, forming an important part of the country’s diplomacy. On a larger scale railway has
been the concern of international organisations equally. A UNESCAP report of 2003 termed
the railways as a sunset industry, which was in need for a restructuring especially when we
look at countries such as India, which have for years seen underinvestment and political
interference. In such circumstances, various new measures were adopted by the newly formed
National Democratic Alliance in 2016, which sought to increase the power of the railway
administration at the zonal level with the aim of catalysing development at the micro level.
This, however is a task, which is yet to fully gain traction and with the increasing liabilities
over the state, it has now been decided to disinvestment in the strategic business segments
and also increase private participation, given the need for a collaborative development , thus
looking at Public Private Partnership as a possible mode of development and help supplement
efforts of the government

Now let’s have a look at India’s first ‘Private’ train, though in a way it seems unfair to term
the New Delhi – Lucknow Tejas Express and the forthcoming Mumbai – Ahmedabad Tejas
Express, which will be the next private train to be rolled out the ministry as a part of
corporatization strategy. There are two sides to this new policy implementation by the
government – One, is the growing interest by the airlines to opt for private train operations on
its loss-making routes, while internally, the policy has attracted strong condemnation from
the railway unions fearing job security and a possible withdrawal of facilities otherwise
enjoyed in a government setup, despite the government’s clear stance on not privatization of
railways

Lets now look at the possible challenges that stand forth from the economic point of
occupancy in trains and fare restructuring. As we examine the fare structure in road and air
transport, the nature of fare is highly dynamic, ad with increase in the non – core
development, there stands a greater chance of micro level charges being implemented in the
fare component increasing the travel costs, which needs to be regulated under strict
regulations considering the magnitude and spread of railways there needs to synchronisation
a larger scale with Special Purpose Vehicles and Regulatory Authorities being constituted by
the government before full scale implementation of the privatization to help maintain a
balance of both government and private control and not diluting the role of the government as
a whole.

Further, another challenge stands before the railways in case of increased private
participation with greater focus on the trunk and chord routes without regards for lines of
strategic importance connecting the hinterlands or bordering areas which require greater
attention and also the need to reach out to potential areas which are need of greater rail
connectivity such as the Northeast, which has received immense support from the
government in its both terms, through the achievement of uniguage policy in the Northeastern
region. Can this be carried forth by the private partners? Can they move beyond the line of
profits and eye on strategic areas as well?

Encouraging an Open Track Policy

In a study conducted by the Indian Institute of Management – Ahmedabad in collaboration

with United Nations Environment Programme, titled “Promoting Low Carbon Transport in
India: A Case Study of the Delhi – Mumbai Dedicated Freight Corridor” which also laid
emphasis on the track usage charges, it can be inferred that there needs to be an Open Track
Policy which can help the private players to reach out to places which are gradually getting
connected through railways and on a 50:50 basis sharing of the profits to help the ministry
pool funds for financing both core and non – core projects.

If it is to be assumed that corporatization can help put the onus on the players to construct
new routes and expand strategic routes, it would be a commercial blasphemy considering the
fact that the major interest of the participants lies in operating greater number of trains
between cities and more importantly look towards a greater operational increment between
tier – II cities, which have of late gained immense significance with the ambitious semi –
high speed project and this becoming the focal point of attraction for the privatization drive
will help boost important investments in the infrastructure and technical field given the
expertise of the airline industry in terms of aircraft leasing, promoting similar practices, while
rationalising the number of trains operating on important revenue generating routes of Indian
railways, which can be made possible through the promotion open track policy through
restructuring zones by means of merger or closure helping improve traffic flow and train
speeds and rationale precedence of trains under the private control

Privatization as the Future to an Efficient and Competent Railway System

Indian railways have for the first time undergone a massive transition to adopting corporate
practices, inviting both bouquets and brickbats from the common public and the railway
unions. At the same time, the airline sector has weakened with growing economic stress,
technical restraints and insolvencies as seen in case of Jet airways and the growing
competition with the railways equally trying to upgrade itself on the technical and
infrastructural front, although it is to be noted, it will be quiet sometime before railway stands
on par with the airline sector. The current induction of private players to help improve
efficiency of railways will now bring a new environment where performance matters and
slight traces of profit orientation ay soon be visible. With growing electrification though on
one hand we are eliminating diesel traction in a phased manner, we are yet not fully
independent of fossil energy, as electrification invites great amount of coal to be utilised for
electricity generation. The entrance of private players can act as a possible impetus to the
Research and Development helping developer cleaner sources of energy, which would help
the railways achieve its two-fold mission of energy efficiency and speed. At the bottom of
everything the role of government cannot be completely ruled out and it is necessary that the
government through this participation establish competent authorities for necessary vigilance
of railways in the areas of safety, tariff regulation, station development, catering and other
activities, which are central to a successful corporate practice endorsement