Earlier this month, the National Institution for Transforming
India (NITI Aayog) issued a discussion paper on Private Participation in
Passenger Trains (see
here). The discussion paper proposes engagement of private players for
running passenger trains on 100 train routes. The routes proposed include some
of the most popular routes from Delhi, Mumbai, Patna, Chennai, Hyderabad and
Kolkata.
The objectives of the proposal to engage private operators for
running passenger train are stated as follows:
- Introduction of modern technology rolling stock with reduced maintenance
- Significantly Reduce Transit Time
- World Class Service – Improved User Experience
- Capacity Augmentation
- Reduce Supply Demand DeficitI would not like to delve into the mundane issue of whether this proposal is a tacit admission by the Indian Railway that it is not possible for it to provide global standard services in the present format.I want to raise a rather meaningful and certainly relevant issue.With over 1.3million employees, Indian Railways is one of the largest civilian employers in the world. With an annual budget of over Rs2trn, it plays a significant role in the Indian economy.As per the latest data released by the CAG, Indian Railways could be one of the most inefficient rail operators in the world with an operating ratio of 98.44% in FY18. This implies that Indian Railways spends Rs98.44 for every Rs100 of revenue it earns. Excluding the advances received from NTPC and IRCON, the operating ratio for FY18 would be 102.66%, implying operating loss in operations of Indian Railways.The primary argument behind the privatization of passenger services in my view may be to relieve the Railways from the burden of huge subsidy it provides for carrying appx 8.5bn passengers every year. As per the CAG report, almost 95% of the profits from freight haulage services was utilized towards the loss on operation of passenger and other coaching services.Besides, the share of internal resources in total capital expenditure also fell to 3.01% in FY18, resulting in higher dependence on the gross budgetary support and extra budgetary resources for capital expenditure. The growth and modernization plans of Railways is obviously suffering.
Keeping the current conditions of the Railways in mind, the points to ponder are as follows:
(a) Once the dedicated rail
freight corridors and Sagarmala (sea route for non export cargo movement)
projects are completed the share of Indian Railways in freight movement may
come down.
(b) Development of highways
shall continue to challenge the Railways dominance in the freight movement
business.
(c) GST has changed the
trade paradigm in the country. There are high chances that henceforth most
large projects will be set up close to raw material sources minimizing the
movement of bulk materials like coal, iron ore etc.
(d) Engagement of private
operators in the passenger freight business may not result in any meaningful
reduction in fixed off track (administrative) costs of Indian Railways.
This would essentially mean that the Indian Railways shall be
treading on the same path as the public telecom operators (MTNL & BSNL),
public air carrier (Air India), Public Power Equipment Manufacturer (BHEL), and
Public Coal Producer (Coal India) have treaded in past 2 decades.
With the inbuilt operating inefficiencies and largely inflexible
cost structure, running the Indian Railways as a business venture may no longer
be viable.
