Ministry of Railways has invited private participation for operation of passenger train services over 109 Origin Destination (OD) pairs of routes using 151 modern trains on existing rail infrastructure.
- Indian Railways (IR) is the largest passenger and fourth largest freight transporting railway system globally.
- Bibek Debroy Committee in 2015 recommended that private entry into running both freight and passenger trains should be allowed.
o Idea was to bring in competition with Indian railways via “liberalisation and not privatisation” in order to allow entry of new operators “to encourage growth and improve services.”
o It also noted that passengers were willing to pay more, if they had guaranteed and better quality of travel and ease of access.
- Consequently, Indian Railway Catering and Tourism Corporation Limited (IRCTC), in which the government is the majority shareholder, was given pilot Tejas operations which were the first trains allowed to be run by a ‘non-Railway’ operator.
About the recent step:
- It would be the first initiative of private investment for running passenger trains over Indian Railways network attracting investments of an estimated ₹30,000 crore which is expected to begin in 2023.
o to introduce modern technology rolling stock with reduced maintenance,
o reduced transit time, boost job creation, provide enhanced safety,
o provide world class travel experience to passengers,
o reduce demand supply deficit in the passenger transportation sector.
- 109 OD Pairs have been formed into 12 Clusters across the Indian Railway network.
o Each Train shall have a minimum of 16 coaches. Trains shall be designed for a maximum speed of 160 kmph.
- The invitation (officially termed as Request for Qualification (RFQ)) had been issued under the Make in India policy. So, the coaches would have to be manufactured in India and the local component would be as specified in the policy.
- Responsibility of Private Entity:
o It shall be responsible for financing, procuring, operation and maintenance of the trains.
o The operation of the trains by the private entity shall conform to the key performance indicators like punctuality, reliability, upkeep of trains etc.
o Private firms will have the freedom to decide fares and stoppages, and also the basket of services on offer in these trains.
o The driver and guard of the trains will Railway officials who will operate these trains, maintain track infrastructure etc.
o The safety clearance of trains will be done by Railways only.
- Private sector will be allowed to run these trains for a 35-year period in return for a share in the revenues they earn, apart from payments in the form of fixed haulage charges and energy charges for using public infrastructure.
Arguments against the move:
- Absence of any independent regulator: There are apprehensions that if IR itself plays the role of regulator (or there is no independent regulator) then it would be detrimental to the competition and interests of private sector.
o If same entity is effectively the policy maker, regulator and service provider, then as Bibek Debroy committee pointed out, it will be a “clear conflict of interest”. It may also lead to corruption as private operators will try to bribe to solve any problem.
o Government has approved to setup Rail Development Authority for promoting competition, efficiency, ensure consumer welfare but it will be mostly advisory in nature and more powers to decide on operational issues are needed.
- Railways is a public service: Rakesh Mohan committee report had pointed out that the international experience on privatising railways showed that it was “exceedingly difficult and controversial”.
o For example: When Britain privatized its railways, it offloaded assets including tracks and routes that led to an underinvestment in infrastructure.
- Unfair competition: 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.
- High saturation and over-utilized capacity on popular routes: since passenger and freight traffic move on same tracks in India, increasing speed or capacity has been difficult. And it remains to be seen whether the dedicated freight corridors can free up enough capacity.
o IR’s golden quadrilateral and its diagonals make up only 15 per cent of the total route of the railways but it transports 52 per cent of passenger traffic and 58 per cent of total freight load.
- Set up an independent regulator: As recommended by various expert committees like Bibek Debroy committee, there is a need for such regulator which needs to ensure transparency.
- Better utilization of existing infrastructure to address congestion: Prioritize ongoing projects to improve capacity utilization. Timely completion of these projects will also generate more revenue.
- Rationalize fare structures and subsidies: Revisit IR’s pricing model to make the passenger and freight segments sustainable. Focus should shift on improving efficiency and quality at the same time.
- Ensuring quality and less costs:
o IR can corporatize the entire production-unit assemblage as a first step. It has the potential of kick-starting public-private partnerships (PPPs) to introduce better technology in manufacturing of coaches and locomotives.
o Another method of ensuring efficiency is having different operators owning and managing seamlessly different segments of the railways, such as rolling stock, tracks, stations and passenger services like catering and cleaning.
Why do we need more private participation?
IR faces certain challenges like:
- Inability to meet demand: As per Railway Board, 5 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.
- Lack of modernisation and poor services: services offered to passengers are considered poor like poor cleanliness, quality of food, safety issues, delays etc.
- Decreasing modal share of railways: Despite being more economical mode than road transportation, railways is losing its share in modal transportation mix.
o An analysis by Economic Survey, shows that a steady shift to other modes of travel was affecting economic growth by as much as 4.5% of GDP-equivalent.
Losses in passenger services to IR: phenomenon of cross-subsidy for passengers in low-cost trains through higher freight tariffs is being implemented. It also adversely affects the growth of freight transport.
Need for resources: Rakesh Mohan Committee observed that Indian Railways over the past decade (1991-2002) has fallen into a vicious cycle of under investment, mis-allocation of scarce resources, increasing indebtedness, poor customer service and rapidly deteriorating economics.