Railway Reforms

Why have Indian Railways opened doors for private players?


From UPSC perspective, the following things are important :

Prelims level: Opening railways for private players

Mains level: Paper 3- India railways: Challenges and opportunities

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

Practice question for mains:
Q. Indian Railways has been the lifeline of India’s growth story since Independence. Discuss various opportunities and challenges ahead of its privatization.

Why such a move?

  • 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.

Moving the paralyzed system

  • 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.
  • At present, scheduled passenger train services remain paralyzed during the COVID-19 pandemic, and various railways have been running only specials such as those for workers.

What is the background of the decision?

  • The present bid is 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.
  • Without an expansion, and with the growth of road travel, the share of the Railways would steadily decline in the coming years.

Bibek Debroy Committee Recommendations

  • Several committees have gone into the expansion and the modernization of Indian Railways.
  • 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 privatization”.
  • It asked for 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.

Why is the move significant for Indian Railways?

  • For the Railways, one of the largest organisations in the country, operating not just trains for passengers and freight, but also social institutions such as hospitals and schools represents a radical change.
  • 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.
  • 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.
  • In more recent years, it has focused on revenue generation through dynamic demand-based pricing.

Private players will be game-changers

  • 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.
  • The government would have to explain that it has monetized its expensive fixed assets such as track, signalling and stations adequately for the taxpayer, who has paid for them.

Challenges ahead

  • Several critical issues remain unaddressed. For one, there will be questions over the financial viability of some routes.
  • Railways also tend to cross-subsidise passenger fares through freight revenue.
  • This translates to below-cost pricing, which will make it difficult for private players to compete.
  • On the other hand, higher fares needed to cover costs might bring them in direct competition with airlines, pricing them out of the market.

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