Private Participation in Indian Railways

 

“The Indian Railways will become the growth engine of the nation’s vikas”

                                                                         -Shri Narendra Modi

Indian Railways is one of the largest railway networks in the world. Its network extends 67,956 kilometres. There are 13,169 passenger trains and 8,479 freight trains every day, transporting 23 million passengers and 3 million tons (MT) of cargo from 7,349 stations. Indian railway network is considered to be one of the largest railway systems in the world under single management.

Over the years, revenue growth has been strong. The total gross revenue of Indian Railways in FY20 were 1746.65.2 billion rupees (24.78 billion U.S. dollars). Freight revenue in FY20 was 1,134,878.89 billion rupees (16.24 billion U.S. dollars). Passenger revenue of Indian Railways in FY20 was US$50669.09 billion (US$7.25 billion). Total passenger revenue for the period from April 2020 to February 2021 was 124,094.9 billion rupees (1.7 billion U.S. dollars), compared with 48,809.40 billion rupees (6.7 billion U.S. dollars) in the same period last year.

Freight remains the major revenue earning segment for Railways, accounting for 65% of its total revenue in FY20, followed by the passenger segment.

India’s railway system is plagued by infrastructure deficits on two fronts-aging infrastructure and the speed of new project implementation, which is caused by unforeseen circumstances related to socio-economic issues of acquiring land for new projects and rising project costs

Indian Railways during the recent years has been trying to find out different ways to increase its revenues either through leasing vacant lands or through non fare revenue segment but most importantly invitation Private players for its trains and stations to upgrade its infrastructure and facilities. An Estimate by Indian Railway’s stated that there was a need of capital investment of Rs 50 Lakh Crores till the year 2030 for upgrading its existing infrastructure, expanding its network and for modernisation.

It all started back in 2015, when a panel led by Bibek Debroy drafted a report recommending for restructuring of Indian Railways, It highlighted that Indian railways was not a monopoly anymore and it was facing stiff competition from road transport due to higher freight charges. Another main challenge it was facing was through high subsidy given on passenger fares and recovery of only 57% was seen for ticket sold. The committee called this liberalisation rather than calling it privatisation as it would both be inclusive of growth and improving services to passengers.

At first railway invited bids for 151 trains which was mere number of 2800 mails and passenger trains in operations and there was a constant pressure of increasing the number of trains between big cities this was impacting the expansion and in turn resulting in decline in the share of railways in transport sector.

The government stated that increasing urbanisation and rising income levels is driving the growth in passenger segment and as the government has allowed 100% FDI in the railway sector the government estimates that new investments in rail infrastructure will see a higher growth. With the opening of Western Dedicated Freight Corridor (WDFC) and Eastern Dedicated Freight Corridor (EDFC) in December 2021, the rail network would see a high decongestion with estimated 70 % of the freight traffic shifting to these dedicated freight corridors giving chance to more new passenger trains with improved services and high speeds.

Since the railways is under monopoly of Indian government from the start and no private players has an experience in this particular sector therefore the government has opened this invitation to anyone in the world irrespective of any prior experience in this sector with certain prerequisite such as the company should have a minimum net worth of Rs 1165 crores.

India flagged its first private train, the Lucknow-Delhi Tejas express on October 4th 2020 followed by two more trains all  being operated by IRCTC and by 2027 all 151 trains by 2027 will be on tracks.

Nevertheless, this Private- Public partnership model has to face lot of challenges such as those of proper planning and unrealistic cost estimates and the process being termed as slow and a need to adopt to standard PPP practices in accordance with the global standards and a irk of fire by the opposition parties coupled with Covid-19 causing a shortfall in revenues and suspension of operations for the year 2020.

Still in 2021, the operating ratio of railways is improving but the expenses continue to out pass the revenues. With the recent announcement of National Monetisation pipeline by the government of India worth Rs 6 lakh crores in which assets worth Rs 1.52 Lakh crores would be monetised in the railway sector.

In conclusion, this story may have some pros and some cons, on one side the privatization may alienate the people by pushing towards unhealthy culture of private monopoly where Indians may be on the whims of private players, On the other hand these steps the focus of privatization is to introduce modern technology through rolling stock to reduce maintenance, shorten transportation time, encourage job creation, provide passengers with more safe and high-quality travel experience, and further reduce the demand-supply deficit in the passenger transportation sector.

Author Details:

Name: Ahmar Jafri

Batch: 2021-23

LinkedIn: https://www.linkedin.com/in/ahmar-jafri-b8254a152