Off late, there has been much hue and cry about the privatization of Indian Railways and its future. However, allaying the fears of privatization of such a huge network, the Union Railways Minister Mr Piyush Goyal clarified that the Railways is not going for privatization. “There is no question of privatisation of the Indian Railways,” said Goyal. “There is absolutely no proposal on the table and while we are in the government, there is no question of privatisation. That’s a complete no-no and a red line.” However, the railway wants to attract an investment of 50 lakh crores in 12 years down the lane in future and is considering a public-private partnership (PPP) model for the same.
What is a PPP model?
PPP projects are defined as partnerships between the state and the private sector, which cannot be called, either as complete privatization or complete governmental control.
Recently, railways started the train with bright yellow-and-orange coaches (TEJAS EXPRESS). Though it does not involves a PPP model directly because IRCTC, the train’s operator, is not truly private as the government owns 87.4% stake in it, it has transferred the control into the hands of a PSU.
Other existing projects of Indian railways involving PPP model are:
- Operation of container trains and Construction of Private sidings, ICDs and rail side warehouses-
Some private players like Adani Logistics, Gateway Rail Freight Ltd, KRIBHCO infrastructure ltd, etc have been granted a license to operate goods train to end the monopoly of Container Corporation of India. Most of the current parties use the operations for their internal use but dedicated third-party container operation providers also operate.
Additionally, various multi-modal logistics parks equipped with rail sidings with sheds, large inland container depots, warehouses for storage, office buildings for logistics operators also operate in the PPP model.
- Construction of dedicated freight corridor (DFC)-
DFC is a railway route which is dedicated to the movement of railway freight only. The PPP model opted for the operation of DFC are
- design, build, finance, maintain, operate and transfer
- design, build, finance, operate and transfer
- design, build, finance and maintain.
The Dedicated Freight Corridor Corporation of India Limited (DFCCIL) is a PSU under Ministry of Railways which undertakes construction, operation and maintenance of Dedicated Freight Corridors.
- World-Class Railway Stations, Passenger amenities and Commercial utilization of land-
Also, the private sector is also involved in construction and up-gradation of the railway station to provide state-of-the-art facilities. The Habibganj station in Bhopal is the first station to be developed according to international standards in collaboration with a local private company, the Bansal group. The company has got the lease of the station ground for 45 years. The first phase alone would cost Rs 350 crores where the developer will have to deposit Rs 100 crores with the railways. The station will facilitate shopping stores, restaurants, catering shops, parking etc. Solar energy will be used for electricity in the station premises.
WHERE PRIVATISATION OF RAILWAYS HAS BEEN DONE?
In countries like Britain, Japan, France, etc, the government has resorted to complete privatization of the railways although the model and their success varies from country to country.
While Britain privatized by separating the tracks and train operators, Japan opted for a regional division.
Britain operates a very byzantine network. There are 6 major players in its model—
- Rolling stock companies (owns rolling stock)
- Heavy maintenance suppliers (maintain rolling stock)
- Operators (runs passenger and goods train)
- Rail Track (a company which owns railway infrastructure)
- Infrastructure maintenance companies (maintain signals, depots, etc)
- Track renewal companies (repairs tracks)
- Other service providers (eg: telecommunications)
The entire operation was divided into 3 sections—long-distance intercity rains, commuting services around London, regional services connecting the remote areas of Scotland and Wales. Each has a separate access agreement with rolling stock companies and Rail Track.
Japan has divided its entire network into six regional rail companies and one freight company. As in India, there is a separate division for regions (Eastern Railway, Northern Railway, etc) in Japan there are 6 different companies which handle different regions.
Moreover, the privatization of Japan’s national rail company was a success in areas with dense populations and also because they were allowed to venture into various businesses like advertising, real states and also the profitable SHINKANSEN (BULLET TRAIN).
However, thinly populated regions and rocky areas suffer from lack of passenger and also safety scandals. Also, unsuitability of the terrains for bullet trains makes these regions a scapegoat on the entire network.
Situation Of Indian Railways and its future
Above all, India has the world’s third-largest railway network under single management. Indian Railways has 13,452 passenger trains and 9,141 freight trains daily. This is only going to increase for Indian Railways in the future
Revenue growth has been strong over the years. Indian Railways’ revenues increased at a CAGR of 6.20 per cent during FY08-19 and reach to US$ 27.13 billion in FY19. The gross revenue stood at Rs 85,835.05 crore (US$ 12.28 billion) in FY20P (up to September 2019).
Freight earnings of Indian Railways have grown at a CAGR of 4.03 per cent to US$ 18.20 billion in FY19. Freight earnings in FY20 (up to September 2019) stood at Rs 54,232.05 crore (US$ 7.76 billion).
Freight Revenue and Passenger Revenue for Indian Railways
Revenues from the passenger segment of Indian Railways have increased at a CAGR of 6.43 per cent to US$ 7.55 billion in FY19. Passenger earnings of Indian Railways is estimated at Rs 26,642.73 crore (US$ 3.81 billion) in FY20 (up to September 2019).
Therefore, Freight remains the major revenue earning segment for the Railways, accounting for 63.18 per cent of total revenues in FY20 (up to September 2019), followed by the passenger.
Further, the total area of land under the Railways network is 461487 hectare out of which 414240 hectare is under operational and allied use and 46333-hectare land is vacant. The vacant Railway land is mostly in the form of narrow strips along tracks, which is required for servicing and maintenance of track, bridges and other infrastructure.
There are myriads of issues mounting up in front of Indian Railways and its future ahead.
Most Noteworthy is a high operating ratio. Operating ratio indicates money spent by railways to earn each rupee, so lower the ratio, better it is. Globally, an operating ratio of 80% or below that is considered healthy as it allows railways to invest through its own resources in capacity expansion and modernisation. However, the current ratio is much higher than that. One of the reasons is the high number of pensioners. Moreover, According to Railway Board chairman Vinod Kumar Yadav, the Indian Railways has 1.3 million pensioners, as against 1.2 million employees. The pressure on their salaries and passenger subsidies are huge.
Also, a hike in freight rate has allowed the roadways to eat up a major share of railways. Since for the political benefit, the passenger trains are not allowed to increase the fair price and to compensate for the loss of revenue the entire onus falls on the freight sector. Also, there is no fixed schedule for goods train and they move only when passenger trains provide enough window leading to delivery delays and high costs.
Corporatization can improve the operations of Indian Railways and thus, it’s future. Corporatization refers to the process of transforming state assets, government agencies, or municipal organizations into corporations. The control of railways should be shifted from a ministry to a new PSU created for this purpose.
Also, Dedicated freight corridors could be created for faster movement of a goods train and to gain an increase in the share of contribution of earnings form freights.
Moreover, Outsourcing of allied services like catering services in all the existing trains will not only help in improving the quality of services but will also reduce the burden on railways and help it to focus on its core function.