In what can be called a watershed moment in the history of Indian politics, perhaps in its very first, a newly formed government has provided an equal opportunity by prioritising railways in its agenda of holistic development. As you read these lines, perhaps you might wonder, the justifications that accompany behind the calling the years following 2014 a watershed event when a part of history is being repeated with the government mulling over involving private players in railway operations much along the lines of the United States or the United Kingdom at its best. The idea behind mooting private train operations is very much familiar to the current ruling government since the financial crisis of 2001 triggered by suspected reasons of social obligations saddled on the railways with irrationally low fares with the freight making up for 74 per cent of the revenues. This was followed by a gap of a decade before the idea was mooted again after receiving the Debroy panel recommendations to help distinguish among the responsibilities of the government and the responsibilities of the private players. As progressive as this idea looks, it is as well a tightrope walk involving the stakes of many. What does the future hold for the railways? The article will help deconstruct the objectives of private train operations
A Straight Forward Yet a Complicated Approach to Railway Modernisation
The Public-Private Partnership evolved with a new approach to looking at improving the passenger segment of the railways which has been a very sensitive sector within the railways with a major threat posed by the aviation market’s low-cost carrier and the implementation of a short-sighted and poorly informed Flexi fare providing a greater advantage to the aviation sector signalling a massive shift of the passenger base. The self-defensive attitude of the railways without a rational justification has been yet another reason for declining hold over the passenger segment with lack of inclusiveness is the last straw to the growing complications. Drawing examples from the aviation sector and looking at the UK model, the railways, therefore, decided to embark on actively involving private players in sectors vital to improving the passenger base inviting Request for Qualifications (RFQ) for the entry of private players in the railways.
Under the proposed arrangement, the private players will operate 109 pairs of private trains with 16 coaches with an operational speed of 160 kmph across 12 clusters. Each private player shall pay the required haulage charges for the usage of the railway infrastructure. Additionally, the private players shall shoulder the responsibility of fare structuring, handling of onboard services and fixing stoppages along the route and maintenance of trains, while the railways shall provide crews for the operation of trains. This has attracted the attention of prominent players which include Adani Ports, France’s Alstom, Spain’s Talgo, Macquarie group, Tata Realty and Hyundai Rotem Company. The currently proposed routes include Patna, Howrah, Bengaluru, Jaipur, Prayagraj, Chandigarh, Chennai, and two each from Delhi and Mumbai.
Punctuality occupies the centrestage in determining the operator’s overall performance. There’s a catch to the idea and the players involved. France’s Alstom, Hyundai Rotem Company, and Spain’s Talgo though are leaders in manufacturing locomotive and rolling stock as consideration to the point, they lack experience in transport operations specifically related to railways. A similar weakness also holds good for Adani Ports, which has no exposure to railway operations in any manner, stares at a tough path ahead.
The Reasons Behind Mooting Private Train Operations
The Indian Railways being a government-run sector has been driven largely by social obligations and cross-subsidisation with the passenger fares being kept low, while a major revenue is pooled in through the freight train operations. With only 57 per cent of the cost recovered through ticket earnings and subsidy at a tune of 38,000 crore rupees saddled on Indian Railways has resulted in a poor operating ratio of 96 per cent interpreted as the railway spending Rs. 96 to earn Rs.100, with the cost of train operations tuning to 77,000 crores making the passenger segment unprofitable. Further growing facilities in the aviation sector and the comfort provided by private bus operators have further posed a threat to the railways and steady decline in its share in the transport market to a mere 22 per cent. Further simultaneous responsibilities of policymaking and maintenance of facilities have prompted the government to involve the private players on a larger scale in train operations and maintenance such as ticketing, rake maintenance, onboard facilities, while the government focuses on strengthening the infrastructure pre-requisite to the punctual and safe train operations.
Partially influenced by the famous saying of Margret Thatcher “the government has no business to be in business” and realising the fact that the railways no longer hold the monopoly to the transport market reinforced by making the railways competent against other transport modes, the private players can help bring their experience to the table to help improve the railways with leaders in the aviation and the travel sector joining the bandwagon to help compensate for losses incurred on certain sectors in the case of aviation, while the travel partners can help redefine the booking experience. By the first impressions, it looks like a fantastic idea and a key to improving the passenger share, but in the quest for improving passenger base through private participation, perhaps we have lost a track of the possible downfalls in the long run.
The Costs, Benefits and Challenges
Before dwelling into the issue from a nationalistic or moral discourse behind the privatisation of railways, we must introspect the net benefit derived out of the process itself. As we look at the railways, there is a massive demand-supply gap which has deprived many of the access to travel by trains. The lack of direct connections to every state/ city is one such reason. An interview with the CEO of Indian Railways V.K Yadav revealed some scathing realities through numbers. Despite a sizeable number of 8.4 billion (8.40 crore) [1] passengers for the financial year 2019-20, close to 5 crore passengers had to opt for alternative modes of transport for the want of tickets in preferred trains. The problem, however, runs deep especially in the summer period with 13.3 per cent, which is more than two times the normal rise in attrition rates, especially in the periods of highest demands.
Private involvement can certainly aid in both expanding capacities as well as efficient utilisation of the existing capacity. Traditionalists still adhere to the notion of Railways being a “natural monopoly”, owing to its tremendously high initial infrastructural costs. Yet, having private participation in an already established public franchise implies a marginal, not total, capital investment to be borne by the former. Moreover, competition in claiming rights for the public-private partnership (PPP) ensures the most effectual investment plan wins the contract. This can prove to be largely advantageous for the archaic railway systems in the country, in dire need of an update with the rider dynamics.
There has been a growing emphasis on the efficiency the modern coaches, requiring maintenance after a mileage of 40,000km instead of the current 4,000km. The creation of a faster and safer railway asset, in the particular context that of the locomotive and rolling stock lays the foundation for bigger infrastructural projects, such as the golden quadrilateral and its diagonals, bearing 60 per cent of the nationwide traffic.
Whilst the arguments might seem justified on the manufacturing side of the affair, critics usually raise their concerns from the consumers’ point of view. From more than six years ago, the Modi government’s initial announcement of private participation in railway sparked contention in politicians and academicians alike. The then Chief Minister of Assam, Tarun Gogoi had criticised the Prime Minister for his adoption of a ‘’capitalist policy”.[2] A major, controversial point was the allowance of 100 per cent foreign direct investment (FDI) in the sector. There has been little restraint on foreign capital in a traditionally nationalised sector certainly raised many eyebrows on a strategic as well as nationalistic standpoint. For a country like India which has to borrow in foreign currency, the possible balance of payment crisis that may arise lest the government fails to meet their obligations (especially in a venture so crucial), can result in disastrous consequences. Geopolitically, it is vital for India to not meet the same fate as many of its other Asian counterparts have in the debt trap, specifically from its neighbour, China. Nevertheless, the then railway minister D.V. Sadananda Gowda soon after clarified that the FDI involvement is limited to the capital investment, and not any continuous operational activities.[3]
A second glance at the definition of a “natural monopoly” makes it abundantly clear of the lower operational costs that the business demands. Involving private aid in day-to-day affairs can greatly benefit the industry. Despite a major overhaul the Indian Railway and Catering Tourism Corporation (IRCTC) is yet to develop the capability of handling the rising pressures of the catering, tourism and travel industry. This has been affected manifold since railways financial crisis of 2001, post-globalisation, as the Indian Railways found itself unable to cover the bare operating expenses with a paltry balance of Rs 350 crore. Given the need of the hour, the Rakesh Mohan Committee¸ recommended the corporatisation of the sector. In this state-run set up, the social demands would be under the public jurisdiction, while the operating under the private – both running in parallel. There lies a need “to sustain the variables of core segments, and greater emphasis on performance and monetary maximisation would help meet variable costs”. [4]
The Larger Picture of Privatisation
As the saying goes, “History repeats itself” we are at a juncture where we are going back to the idea of guarantee system which helped expand the railways, but growing liabilities and no assets contributed to the downfall of the guarantee system. What we see today is not exactly what was prevalent 167 years back. The turn of the millennium signalling growing challenges and competition to railways, no longer the natural monopoly saddled with social responsibilities and a poor financial base, much of which can be attributed to lack of options for direct connectivity and the onslaught of the growing web of the aviation sector, the argument to help overcome the costs of train operations though may seem justified, yet are not convincing enough for the need to privatise railways and the operations. It is therefore important that the government looks back at its mechanism of policymaking and move beyond the polished corridors of Rail Bhavan involving academicians and think tanks at large to help the railways make an informed decision in executing policies. With just 5 per cent of the trains being private, it is worth seeing how will the private players react to the long-term infrastructural issues which can act as a possible obstacle to effective performance and if at all they can beat the ever-growing aviation sector reaching out to regions once deprived of direct access. The greater benefit of both the parties, therefore, lies in reaching to regions deprived of direct connectivity by rail, while also ensuring a competitive fare structure to prevent further decline of the passenger sector to aviation helping reach a stage of a mutual benefit without any compromise to the core principles of railways with which it was established.
References
[1] Private Trains will benefit travellers: Railways
https://www.thehindu.com/news/national/private-trains-will-only-help-travellers/article31973388.ece
[2] Gogoi opposes 100% FDI in Railways, Privatisation of Stations
https://www.firstpost.com/business/economy/gogoi-opposes-100-fdi-in-railways-privatisation-of-stations-1998443.html
[3] No FDI in Train Services
https://www.thehindu.com/news/national/fdi-not-to-be-allowed-in-railway-operations-sector-govt/article6292004.ece
[4] Railway Privatisation in India: Opportunities and Challenges
http://www.inthelongrun.org/articles/article/railway-privatisation-in-india-opportunities-and-challenges/
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