The Need for Privatisation of the Railways
The Indian economy embarked on a historical reform under PV Narasimha Rao in 1992. An economy that was stagnating under the weight of numerous large, unwieldy, and inefficient public sector institutions was set free through the systematic privatisation of erstwhile monopolistic institutions. License Raj died an unmourned death, and though one may argue the privatisation process wasn’t fast enough, it is tough to deny the benefits that followed. One only needs to look at the condition of airports before and after privatisation to get an idea. However, there is one institution that remains stuck in a time warp, and that is Indian Railways. A few eye candy trains, such as the Vande Bharat, and the renovation of some railway stations notwithstanding, the majority of Indian trains haven’t moved beyond what we had in the 1970s or before. There is no sector other than Railways that has such an absolute monopoly over its own sector.
The Indian Railways is struggling to serve millions of commuters daily. Despite all the window dressing, a typical railway station scene is no different from the era of black and white films. We can see families crowded under the flickering lights, waiting not just for trains but also for a semblance of order and safety in their journeys. With delays becoming increasingly frequent, overcrowded compartments, and outdated facilities, the resilience of this extensive network is at a breaking point. For many, the experience of rail travel has become synonymous with frustration rather than reliability. Obtaining a reserved seat is nearly impossible on any major route. And even if one manages to get a ticket, there is no guarantee that one can travel in the allotted seats. Ticketless travel has become the norm rather than the exception, mainly due to the difficulty in obtaining tickets.
Despite such overcrowded compartments, the operating ratio—the percentage of revenue spent on operations—steadily hovers around an alarming 98 per cent, meaning that for every `100 earned, only `2 are available for capital investments. As of 2024, its operating ratio stood at a hefty 98.43 per cent. This means that it spends over `98 for every `100 it earns. This money only covers expenses such as repairs, maintenance, staff salaries, and pensions. Indian Railways recovers only about 57 per cent of its operating costs from ticket sales, and most of its passenger trains operate at a substantial loss. These get cross-subsidised by an exorbitant freight cost. So, the preferred mode of transport for the freight movement is by road rather than by railway. This unsustainable financial model primarily stems from ticket pricing that has not kept pace with inflation or operational expenses.
Moreover, safety issues remain a persistent concern. Accidents, often resulting from outdated tracks and equipment, highlight the dire need for modernisation. Commission reports, such as those from the Bibek Debroy Committee, underscore these concerns, calling for a restructuring of operational frameworks and increased private sector investment to drive improvement.
Indian Railways is an institution steeped in tradition and has yet to fully emerge from the legacy of the British era. They are sitting on the most premium real estate in most towns and cities across India, but most of this precious real estate is wasted on bungalows, schools and quarters for the railway staff. It is high time that Railway lines and stations are considered like National Highways, where the government owns the infrastructure but vehicles belonging to the private and public sectors operate by paying toll taxes to a private operator who maintains the road.
The introduction of private operators may induce fears that it will lead to higher costs and reduced access for the economically disadvantaged. Yet, it is key to recognise that modernisation does not necessitate the abandonment of tradition. Instead, a well-structured privatisation approach can blend innovation with the established ethos of the railways.
The aviation sector in India provides a substantial point of reference for understanding the complexities of privatisation. After the liberalisation of the aviation industry in the early 2000s, private airlines proliferated, improving service quality, operational efficiency, and connectivity. Although these changes faced initial resistance, the overall benefits included increased competition and lower fares. Though the advantages of privatisation has been mostly lost due to the government allowing monopoly in airport operations to one particular business house and duopoly in airlines operations, one can’t forget the benefits of low fares and better connectivity that the privatisation brought in when the aviation sector hadn’t gone from a government monopoly to a private monopoly like now.
Despite such setbacks, the long-term transformation of Indian aviation offers valuable lessons. The introduction of bullet trains presents a significant opportunity for the Indian Railways to leap into modernisation. This ambitious project could revolutionise travel, offering fast and efficient alternatives that cater to an evolving economy. Implementing a well-defined regulatory framework can ensure that private companies are held accountable to safety standards while simultaneously driving innovation. The potential benefits of privatisation are considerable, particularly when considering the vastness of the Indian rail network and the sheer volume of passengers. Engaging private players, including multinational ones, can introduce fresh capital, innovation, and expertise. The sheer size of the Indian market can be leveraged to invite private interest. Our railways carry nearly 67 crore passengers every year. We can take a leaf out of how China handled and modernised its railways to make it the best in the world. They separated all non-core functions and created a world-class network. Indian passengers have proven that they are willing to pay more if the Railways provide even half-decent trains, such as the Vande Bharat. The fact is that we need a real shake-up in railway infrastructure, much like the one that shook the Indian economy in 1992. The current approach of incremental changes will not suffice if we have any aspirations of catching up with China in the next five decades.