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Tuesday, August 04, 2020

A different track

Indian Railways opening up to private players in passenger services is a good idea — but there will be challenges ahead.

By: Editorial | Published: July 4, 2020 12:59:27 am
indian railway, indian railway privatisation The Railways has taken some steps to make this an attractive proposition for the private sector.

On Wednesday, the Indian Railways initiated the process to allow private firms to operate passenger trains on its network by inviting entities to participate on 109 origin-destination routes through 151 new trains. In return, private operators will have to pay fixed haulage charges, energy charges on the basis of actual consumption, and a share of their gross revenue to the Railways — the last parameter will be bid upon. While these 151 trains will form a minuscule portion of the entire railway network, this marks the beginning of private sector participation in passenger train operations, the only form of transport that remains a government monopoly.

The Railways has taken some steps to make this an attractive proposition for the private sector. For instance, the time slots for private operations have been fixed at the bidding stage itself. However, 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. Further, as the experience of private operators in running container trains suggests, setting up an independent regulator will be critical for creating a level playing field for private players. Currently, the same entity is effectively the policy maker, regulator and service provider, rolled into one. This, as the Bibek Debroy committee pointed out, “is a clear conflict of interest”. An independent regulator can help establish trust with the private sector, facilitating its entry, but without it, the balance of power will continue to be tilted in favour of the Railways.

While liberalising the entry of new operators may be the path for improving services, and facilitating growth of the sector, there is need to exercise caution. Given the inherent complexity involved in this — the Rakesh Mohan committee report had pointed out that the international experience on privatising railways showed that it was “exceedingly difficult and controversial” — and keeping in mind the social welfare concerns, this should be treated as an opportunity to explore what will work, while keeping the flexibility to adjust the framework and fine-tune the rules and regulations.

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