Privatisation of Indian Railways

7th July – Privatisation of Indian Railways

Privatisation of Indian Railways

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

Details –

  • 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.
  • In December 2019, Union Railway Minister Piyush Goyal had said that a Group of Secretaries had gone into the question of allowing private train services. There was no proposal to allow more Tejas trains from Indian Railway Catering and Tourism Corporation Limited (IRCTC), the Minister said.
  • 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.
  • The present move takes another step towards competing passenger train operations, bringing new generation trains and attracting investments of an estimated ₹30,000 crore.

What is the background to the decision?

  • 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.
  • 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% of the 2,800 Mail and Express services operated by Indian Railways. 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.

Need for privatisation-

From a passenger perspective, there is a need for more train services, particularly between big cities. 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. Without an expansion, and with growth of road travel, the share of the Railways would steadily decline in coming years.

Why is the move significant for Indian Railways?

  • 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. 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.
  • The Debroy committee found this significant to take the ‘Make in India’ objective forward. The panel also noted that passengers were willing to pay more, if they had guaranteed and better quality of travel and ease of access. The move to augment capacity virtually overnight through private capital in train operations pursues this line of reasoning.
  • 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. In more recent years, it has focused on revenue generation through dynamic demand-based pricing.

Are private train operations sustainable?

  • Private operators are not expected to shoulder the burden of universal service norms, and will focus on revenue. 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. 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.
  • 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.
  • Private operators will have to raise the level of their offering to justify higher fares and attract a segment of the population that is ready to pay for this difference.

SourceThe Hindu

QUESTION – Recently, the Railways Board has announced that it plans to start private-operated trains by the year 2023. Examine this decision in context of consumer services and benefits to the Indian railways.

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