Privatisation must cover the whole rail sector, not just the railways
We need a Railway Ministry that articulates a policy neutral between public and private players. Expressions like ‘liberalise, privatise and corporatise’ need to be thought through.analysis Updated: Sep 02, 2017 07:28 IST
Every indicator, not just safety-related ones, underlines the travails of Indian Railways (IR). An instant solution is also offered. Every monopoly is inefficient, especially a public sector one. Liberalise, privatise, corporatise. Isn’t that how railways were developed in India, through private sector initiatives in the 19th century? Let’s leave aside history, where, the private sector didn’t exactly smell of roses. What do we mean by privatisation and what do we mean by IR? There is an IR that owns infrastructure (tracks, signalling, rolling stock, stations) and there is an IR that runs trains. There is also an IR that runs schools and hospitals, but since this is a non-core function, let’s just assume, eventually, IR sheds that. By privatisation, we may either mean private entry, or selling IR’s equity.
Most services on trains and stations (cleaning, catering and maintenance) are already privatised. There is little IR does departmentally. Wagons are produced by the private sector. So, increasingly, are coaches and locomotives. What most people mean by private entry is the private sector running trains. On this, will we contemplate locomotive drivers from the private sector and safety (not to be confused with security) handled by the private sector? That’s worth thinking about. On privately run trains, most people don’t know policy already allows that. Why don’t we see them? There have been private luxury trains. On mainstream trains, there are two reasons. First, there has to minor tweaking of legislation to permit the private sector to charge fares and those fares, after the regulator has been set up, have to be reasonable. Second, any train, public or private, requires a path, from point A to point B. Today, capacity constraints are such that it is impossible to provide that path, for both passenger and goods trains. Sure, after freight corridors, capacity constraints will ease a bit. But fundamentally, easing requires huge investments, which IR’s present financial woes don’t allow. If you want to run a private train from Jodhpur to Jaisalmer, I am sure IR will find you a path. However, that’s not a remunerative segment. The private sector will be interested in high-density corridors, where there are capacity issues. Eventually, when private trains take off, they will run in those high density corridors. Who runs trains elsewhere? Will there be something like a universal service obligation? As a final element in private entry, what about stations? Private management of stations is one thing, private development is another. Private development requires a revenue model. Without land for commercial real estate development (like Delhi and Mumbai airports), it won’t work. At best, given distribution of IR land, this might happen for around 15 stations and no more.
Let’s turn to privatisation through selling IR’s equity. Everything isn’t like IRCTC, IRCON or IRFC. A major problem is lack of proper commercial accounting in IR. Before buying something, you need to know its worth. Today, this isn’t possible. With successful pilots in zones/divisions already undertaken, there is no reason why the entire IR system shouldn’t have proper commercial accounting in the next two years. After that, production units (for manufacturing rolling stock) can certainly be hived off. There is no convincing market failure argument for these. But on infrastructure interpreted as tracks, signalling and related matters, all railways have a historical evolution and models imported from elsewhere can’t be easily implanted. It is a vertically and horizontally integrated structure, notwithstanding initial independent and regional developments in 19th century. Therefore, unbundling and privatising this is an expensive and pointless proposition. Once you have taken away the infrastructure, in the form of something like an IR Infrastructure Corporation, and hived off production units and non-core functions, what is left in the IR bit that runs trains, especially after private entry? There is nothing left to privatise there.
In sum, expressions like liberalise, privatise and corporatise need to be thought through. There is a terminal goal and there is a process that leads to the goal. Talking about the goal in isolation serves no purpose. We need a Railway Ministry that articulates a policy neutral between public and private players. It is a ministry for the railway sector, not for IR. We need an independent regulator to implement those principles of fair competition, with tariffs freed and subsidies better targeted. We need to carve out the IR Infrastructure Corporation. We need commercial accounting. Railway Board becomes a corporate board only for the IR that runs trains. The production units are sold. Non-core functions are shed. I’d call this terminal goal one of competition and choice. Privatisation is a means to that end. It is not an end in itself. And we need to spend our energies on fashioning and debating the process, not the terminal goal.
Bibek Debroy is Member, Niti Aayog
The views expressed are personal