IAS Gyan

Daily News Analysis

Privatisation of Railway Transport

12th August, 2021 Economy

Context:

  • On July 1, 2020, the Indian Railways launched the formal process of inviting private parties to run trains on the Indian railway system.
  • Hopes of a large participation were belied as there were no bids for nine clusters and only two bids for three clusters.
  • Even for these three clusters, the only serious bid was by Indian Railways’ (IR) own company IRCTC, which in effect negated the basic objectives of bringing in private capital.

Background:

  • 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.”
  • It also made it clear that a regulatory mechanism was a prerequisite to promote healthy competition and protect the interests of all stakeholders.

Need for the privatization:

Betterment of Infrastructure:

  • Given this, a strong argument in favour of privatization is that it will lead to better infrastructure which in turn would lead to improved safety, reduction in travel time, etc.

Improved Quality of Services

  • Indian Railway services are marred by issues like lack of punctuality, mismanagement in the form of stinking washrooms, lack of water supply and dirty platforms.
  • Privatisation may solve these issues, as the move would foster competition and hence lead to overall betterment in the quality of services.

Technology Infusion

  • The privatization will also help in accommodating the latest technology in railways coaches, safety and travelling experience. Thereby, it may help Indian Railways to become a world-class network.

Failure in attracting private capital:

  • It is an outcome of the lack of alignment of the interests of IR and the concessioners.
  • IR wants the capital and technology without giving up control, while the concessioner wants a far more equal relationship to be moderated by a regulator.
  • IR has imposed constraints that prevent efficient decisions and adopted an organisational design that does not take into account the characteristics and associated risks that will determine outcomes and investment decisions.
  • The biggest dampener is the lumpiness of 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.
  • The other big dampener is the absence of a regulator for resolving disputes. The proposed independent engineer is far from satisfactory. 

 

Way Forward:

  • The central issue is how to align the three interests: India’s need to be capable of designing and manufacturing state-of-the-art rolling stock, IR’s need for private capital participation and private capital’s necessity of earning a profit. 
  • Government should establish a company that leases rolling stock not only to concessioners but also to IR. This will also enable reducing the concession period from 35 years to a more reasonable 10-15 years, bringing in competition.
  • Government must undertake 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.
  • There is need to reduce the period of the concession to around 15 years, establish a regulator and moderate charges like the amount for the maintenance of tracks and stations.