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.
- 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.