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Government Moves Towards Privatising Railways: What Would More Public-Private Partnership in Indian Railways Mean?

Jul 8, 2020 8:08 AM 3 min read

Last week, the Government, initiated the process to allow private companies to operate passenger trains on the Indian Railways network, dubbed as the lifeline of the nation. It released Request for Qualifications (RFQ) proposals - for scrutiny of vendor capabilities - inviting private players to run 151 modern passenger trains on 109 origin-destination routes.

The proposal has drawn interest from some top players, including the Tata Group, Adani Group, Alstom, and Miami-based Norwegian Cruise Line, the world’s third-largest cruise line in terms of the number of passengers. As per reports, India’s largest private carrier, IndiGo, and online travel major MakeMyTrip have also sent in inquiries. 

We discuss how the privatisation of Indian Railways might play itself out, and have a look at the benefits and potential headwinds. 


Government Moves Towards Privatisation of Railways: What Would Private Participation in Indian Railways Mean?


Indian Railways: Need for Speed

While the present invitation only makes up a miniscule of the c. 13,000 passenger trains operated by Indian Railways currently, the push towards a “modern” and “better” form of transportation is vital. Attracting investments worth ₹30,000cr ($4bn) is a huge plus.


“The objective of this initiative is to introduce modern technology rolling stock with reduced maintenance, reduced transit time, boost job creation, provide enhanced safety, provide world-class travel experience to passengers, and also reduce demand supply deficit in the passenger transportation sector,” the Railways Ministry said. 


Fun Fact: According to statistics, the Indian Railways handled 8.4bn passengers in 2019, while it could not provide reservation to around 50m.


Piecemeal Approach?

Privatising even a part of this highly-integrated set-up spanning across 63,028 km, although beneficial, can be a complex regulatory process.

In an earlier interview, Railway Board Chairman V.K. Yadav said,

“Private players will not get operations - driver, guard, safety certification, infrastructure will remain with railways...Private players will only get on-board services - entertainment, food, cleanliness, passenger amenities, fare collection.”

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 Indian Railways.


Government Moves Towards Privatisation of Railways: What Would Private Participation in Indian Railways Mean?


But first things first. 

As an arm of the Government, services operated by the Indian Railways primarily aim to meet the Government's social obligation to connect the remotest locations in the country, where other forms of transportation are unable to reach. 

Besides this, the Railways cover several classes of passengers, and thereby adopt the philosophy of cross-subsidy for passengers in low-cost trains through higher freight tariffs. Only recently have they shifted focus on revenue optimization through dynamic demand-based pricing.

In stark contrast to this, private operators would not be expected to shoulder the burden of universal service norms, and would primarily eye higher profits. Needless to say, they would be bidding for routes, which see higher demand. The “lower demand” circuits that are ignored by the private airline operators in pursuit of profit optimization can serve as a good case-in-point in this regard. 

In addition to this, better services and offerings would inevitably result in a rise in fares, perhaps even aligning railway fareswith air fares in certain cases. Under such circumstances, ensuring best-in-class service and finding passengers who are willing to opt for rail travel over air travel would be key. 

It is no classified information that the Railways has consistently been losing passenger traffic to budget airlines in the long-distance segment.

Furthermore, two types of fares and two types of trains is likely to create confusion amongst passengers and authorities alike. Some even argue that this might give rise to further class divide. 

Private players may also find it difficult to work within the Government framework, risking abandonment midway.

And a common demand by all stakeholders and experts is the need to bring in an independent regulator - one that would oversee fares, operations etc. 

While the proposal does envisage the constitution of a Rail Development Authority - an independent body to decide rail fares to ensure pricing is commensurate with the expenses, day-to-day management on ground will be a different ball game altogether.


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