Day 14 – Q 3.Can privatisation of rail operations bring about positive transformations in the railways? Critically examine.

3. Can privatisation of rail operations bring about positive transformations in the railways? Critically examine.  

क्या रेल परिचालन का निजीकरण रेलवे में सकारात्मक परिवर्तन ला सकता है? समलोचनात्मक जांच करें।

Introduction:

Indian Railways has launched itself on the road to privatisation by flagging off the Tejas Express running between Lucknow and Delhi and announcing plans to privatise the running of as many as 150 passenger trains. The Bibek Debroy committee setup in 2014 favoured privatisation of rolling stock: Wagons and Coaches. It also recommended amending the Indian Railways Act to allow the private operators to levy tariff.

Body

Background:

The Indian Railways is among the world’s 3rd largest rail networks. So far, the government maintains monopoly in rail operations and very little private participation can be seen in areas like wagon procurement and leasing, freight trains and container operations, terminals and warehousing facilities, catering services, and other rail infrastructure through schemes framed by the ministry.

Privatising even a part of a highly-integrated set-up as the railways, although beneficial, can be a complex regulatory process.

Brings positive transformations:

• Improved infrastructure: It is argued that private sector management will improve basic amenities including water supply, maintenance of washrooms and platforms.
• Quality of services: the increased competition will lead to overall betterment in the quality of services.
• Improved efficiency: a private firm aiming profit will automatically will bring in latest technology, cut costs and be more efficient.
• Lesser accidents: Better maintenance and adoption of latest technology like adoption of hofman bush coaches, automation of rail crossings etc., will make the train travelling safer.
• Pressure from shareholders will instigate the rail operations to operate efficiently and maintain quality services to remain competitive.
• It is expected that privatization would remove the railways from short-term political control.
• International examples: As Bibek Debroy committee noted, in experiences from multiple countries, including Japan, the United Kingdom, Germany, Sweden, Australia and USA – the entry of competitors lowered prices and led to better services.

However, privatization can have negative effect as well.

Possible negative transformations:

• Limited coverage: as private sectors are interested in profit, their participation will be limited to lucrative sectors and areas. This will bring regional inequality and difference in service delivery across different routes. 
• Fare: privatization bringing quality services in rail operations will invariably to increased tariff thus affecting lower income groups. Passengers would lose the subsidy in tickets and in freight charges. This will defeat the entire purpose of the system which is meant to serve the entire population of the country irrespective of the level of income.
• Accountability: Often it is seen that private sector doesn’t share their governance secrets with the government. In such a scenario, it is difficult to fix accountability if there is any discrepancy in compliance.
• Railway employees: the biggest fear is the layoff of the rail employees which at present stands more than 1 million. As railways trade unions noted, only the profiting units will be privatized eventually leading to the closure of the loss-making railway units. The same happened in telecom sector as well when it was privatized.
• Private monopoly: the scale of operating railways is huge and thus there is a concern of very little competitors. This will result in private monopoly.
• The short-term profit motive of private firms deters private sector to invest in long term plans. E.g. the UK is suffering from a lack of investment in new energy sources.
• International examples:
  • In UK, the government owned companies participating in privatization process has only increased the government control. The same is seen in India with IRCTC participating in the process which is a government subsidiary.
  • A report from guardian noted, after a decade of privatization of railways in UK, the public suffer from often late, expensive and frequently overcrowded train services.
  • In Japan, the government had to shoulder the debt of private sector to bail them out in order to ensure the seamless operations.

Conclusion

In order to sustain growth, modernization and efficiency, the Indian Railways must redefine its role and responsibility. It has to completely reposition its operating role from being a direct service provider to being a supervisor of services. However, railways have to remain affordable. The government can give subsidies, tax benefits to incentivize private sector to keep the tariffs low and has to regulate thoughtfully regulate by ensuring competition with multiple private players participation.