Railway Reforms

Corporate Model of Indian Railways

Note4Students

From UPSC perspective, the following things are important :

Prelims level : IRCTC, Train18 etc.

Mains level : Corporate Model of Indian Railways

 

The Kashi Mahakal Express is the country’s third ‘corporate’ train after the two Tejas Express trains between Delhi-Lucknow and Mumbai-Ahmedabad started over the past few months.

A new model

  • This is a new model being actively pushed by Indian Railways- to ‘outsource’ the running of regular passengers’ trains to its PSU, the Indian Railway Catering and Tourism Corporation (IRCTC).
  • This has been dubbed an ‘experiment’ as a natural extension of this model is to lease out 100 routes to private players to run 150 trains, something that is in the works.

How does the model work?

  • In this model, the corporation takes all the decisions of running the service– fare, food, onboard facilities, housekeeping, complaints etc.
  • Indian Railways is free from these encumbrances and gets to earn from IRCTC a pre-decided amount, being the owner of the network. This amount has three components- haulage, lease and custody.
  • The haulage charge IRCTC is paying for the Tejas trains is in the range of Rs 800 per kilometer.
  • This includes use of the fixed infrastructure like tracks, signalling, driver, station staff, traction and pretty much everything needed to physically move the rake.

Finances

  • On top of that IRCTC has to pay the lease charges on the rake as Indian Railways coaches are leased to its financing arm, the Indian Railway Finance Corporation (IRFC).
  • Added to that there is a per-day custody charge, of keeping the rake safe and sound while it is in the custody of the PSU.
  • Roughly each of these components works out to be around Rs 2 lakh per day for the New Delhi-Lucknow Tejas rake.
  • In other words, IRCTC has to pay Indian Railways a sum total of these three charges, roughly Rs 14 lakh for the Lucknow Tejas runs in a day (up and down) and then factor in a profit over and above this.
  • This money is payable even if the occupancy is below expectation and the train is not doing good business.

What powers does IRCTC have?

  • Being a corporate entity with a Board of Directors and investors, IRCTC insists that the coaches it gets from Railways are new and not in a run-down condition, as is seen in many trains.
  • The quality of the coaches has a direct bearing on its business.
  • In this model, IRCTC has full flexibility to decide the service parameters and even alter them without having to go to Railway ministry or its policies.
  • To that end, the business of running trains can be run with the independence needed to run a business with profit motive.
  • This, policymakers believe creates the environment for enhanced service quality and user experience for the passengers.
  • IRCTC gets the freedom to decide even the number of stoppages it wants to afford on a route, depending on the needs of its business model.

What is Indian Railways’ benefit from this model?

  • The bright side for Indian Railways is that it doesn’t have to suffer the losses associated with running these trains thanks to under-recovery of cost due to low fares and its own hefty overheads.
  • The lease on its coaches is also taken care of.

Is this the same model for private train operators?

  • The model in which private train operators are sought to be engaged is different wherein along with haulage of Rs 668 per kilometer the operator needs to agree to revenue sharing with Railways.
  • The company willing to share the highest percentage of revenue will win the contract.
  • Private players may not need to pay lease and custody charges as it is expected that they will bring in their own rolling stock.
  • All this is because over the next five years, after the two dedicated freight corridors are operationalised and a lion’s share of freight trains move to the corridors, a lot of capacity will free up in the conventional railway lines for more passenger trains to run to cater to the demand.
  • The government wants private players and maybe also its own PSU, along with Indian Railways, to share the load of pumping in more trains into the system.
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