The plan to privatize parts of the railways
10 min read 04 Mar 2020, 09:54 PM ISTBy 2022, the government wants to launch 150 privately-run passenger trains. How will it all work?It remains unclear how the railways can expect a shift from air and road to rail when private trains may raise existing fares. Another issue is how private trains will run without a regulator
PremiumSome trains are still chugging along slowly, railways minister Piyush Goyal quipped recently, referring to the 1968 hit Bollywood song Rail Gaadi Rail Gaadi in order to show how the popular image of the Indian train has not changed all that much since the 1960s.
At an event in Indore, Madhya Pradesh, in January, where he made that remark while announcing a new premium train for pilgrims, Goyal also insisted that India’s vast railway network will not be privatized. But, he stressed, private sector support was needed to end the “era of slow-moving trains".
To some within the government, leaning on the private sector to improve India’s trains was an inevitability ever since the public-private partnership (PPP) push began in the mid-2000s (primarily in the road and power sector). The new plan: invite private firms to run 150 passenger trains on 100 routes.
The private operators will be allowed to run train services using the common infrastructure of the railways—from tracks and signalling systems to depots and washing lines. According to a document jointly prepared by federal think tank NITI Aayog and the railways ministry, the government is looking at a “paradigm shift in passenger train operations" to deliver “world-class service" to commuters. The move, it says, will reduce transit time, introduce modern coaches and take care of the mad rush for reserved tickets.
Private firms, meanwhile, will have the freedom to decide fares and stoppages, and also the basket of services on offer in these trains. They will be allowed to run these trains for a 35-year period in return for a share in the revenues they earn, apart from payments in the form of haulage charges for using public infrastructure.
“Come 2022, there will be major changes," said Bibek Debroy, who chaired a government committee on restructuring of Indian Railways that submitted its report in 2015. “You’ll have private trains, you’ll have private stations, and the passenger will be willing to pay more if there are visible improvement in services."
According to Debroy, who also heads the Economic Advisory Council to the Prime Minister, competition in running trains can break the existing rigidity in the railway system. “All competition is good...it always does things that you are not aware of," he added.
However, the details of this radical new plan to modernize the railways are still fairly sketchy. For instance, it remains unclear how the railways can expect a shift from air and roadways—modes of transport it is losing passengers and freight due to lower fares and greater convenience—by raising passenger fares in exchange for better services on the new private trains.
Another thorny issue is how private trains will operate without an independent regulator. Is it possible for the railways to sit in judgement in case of a dispute with private firms, while also being a competitor operating trains on the same routes? It is also not clear how new private trains will be accommodated since the existing rail network is already choked and it remains to be seen whether the dedicated freight corridors can free up enough capacity.
A list of queries sent to the railway ministry and officials in charge of public relations seeking a clarification on many of the sticky issues elicited no response. Replies to questions raised by members of Parliament too are clipped.
The ministry has constituted a group of secretaries to “advise on the terms and conditions" of the private trains project, the government said in a written reply on 5 February, adding, “The revenue likely from the project and the details and modalities in this regard have not been finalised."
The nascent idea already has its fair share of doubters though. E. Sreedharan, whose enviable track record with the Delhi Metro earned him the moniker “Metro Man", does not share the enthusiasm of either Goyal or Debroy. “My own experience with Metro is that we expected many private parties to come forward enthusiastically. Ultimately, only three came and all of them are in serious trouble...legal battles are going on," said Sreedharan, referring to the Delhi Airport Express Line, the Mumbai Metro line 1, and the Hyderabad Metro.
“Private parties may come, but they will run away after a few months due to large losses. There is little room to raise fares," he added, pointing to the fact that upper-class air-conditioned (AC) fares in trains are often already similar to prevailing airfares.
The contours
In April 1853, when the first steam-powered passenger train chugged out of Bori Bunder in Bombay, it evinced sharp reactions. People named it the fire chariot; those who got intimidated by the noise called it an iron demon. Yet, the 34-kilometre service which was started as a private enterprise, the Great Indian Peninsular Railways, was a runaway hit. The train carried about 22,000 passengers in the first two weeks. The hope now, 167 years later, is that a similar privately-run train can spur the same level of excitement and innovation.
According to a project information memorandum prepared by the government in January, in FY19, reserved passengers accounted for 18% of all travellers in non-suburban trains (3.65 billion). That year, the railways failed to provide berths to a staggering 89 million wait-listed passengers.
The capacity constraints—existing routes operating at full capacity—has led to trains steadily losing passenger traffic to other modes of transport, admits the railways. Between 2013 and 2018, reserved passenger traffic on Indian Railways grew at less than 5%, on average. This compares to a 13% growth in air traffic during the same period.
“Hence, there is a critical requirement to introduce private operations...which will allow (for the) introduction of next-generation technology and provision of higher service quality," says the information memorandum.
According to the railways, the time taken by a private train to complete a journey will be comparable to the fastest train on that route and will not exceed 160 km per hour. On the same origin-destination route when private trains leave, no other train run by Indian Railways will leave within 15 minutes of scheduled departure of a private train. Each private train will have a maximum of 16 coaches. While maintenance of rolling stock (coaches and locomotives) will be the responsibility of private firms, the safety audit will be done by the railways.
But at least in principle, the idea of private trains is sound, said Vinayak Chatterjee, co-founder and chairman at Gurugram-based infrastructure services firm Feedback Infra Pvt. Ltd. “The content vs carriage principle in infrastructure economics says that carriage should be owned by the state (tracks and rail network), while content (trains) should be a freely tradable commodity... India had overcome the backlash when airports were privatized; when the telecom sector was opened up...it’s time now for the railways to change," he said.
According to Chatterjee, when Britain privatized its railways, it offloaded assets including tracks and routes. That led to an underinvestment in infrastructure. India is following a different path by introducing private trains, which are modern in design and efficient in service, and meets a certain customer demand to get them back on the train.
But there is a crucial caveat, warns Chatterjee. For the private train project to succeed, the government will have to bring in an independent regulator. “Not just for tariffs, (but because) there will be operational issues. Railways can become usurious in its calculation of charges. There are issues related to timing, operations and routes. Private trains have to be treated as one among equals. Without a regulator, a lot of friction is likely between the railways and private players...friction will lead to litigation. In India, that takes years. It will lead to a downturn in (the) mood and a failed public-private partnership," he added.
The project information documents released by the government, however, do not speak of a regulator. What it does state is that the concession agreement will specify penalties for failure to meet performance standards for private firms, and for any lapse on the part of the railways.
Room for premium trains
While it is early days to hazard a guess as to how the private train project will shape up, the launch of premium trains by Indian Railway Catering and Tourism Corp. Ltd (IRCTC) gives an early indication. The Tejas trains were widely hailed as independent India’s first “private" trains, though the project was handed over to state-run IRCTC without any bidding.
The premium Delhi-Lucknow Tejas Express, which launched in October last year, has seen an average occupancy of 65%. After five months in service, its USP remains that tickets on the train are available at a short notice—since it is priced at about ₹1,900 for an AC chair car seat just a day ahead of travel, compared to the superfast Shatabdi Express fare of ₹900 (both trains take similar time—six-and-a-half hours for the 500km commute).
IRCTC has since launched two more trains—the Mumbai- Ahmedabad Tejas, which has seen an occupancy of 80-85%, and a special train for pilgrims. The listed public sector firm has robust expectations from the private train project.
“As on date in India, there is no operator other than IRCTC (for trains not run by Indian Railways). So, we have to tie up with some manufacturer of rolling stock (coaches and locomotives) or some investor who can organize rolling stock for us," said Mahendra Pratap Mall, chairman and managing director of IRCTC, in an earnings call on 13 February.
He added that the performance of Tejas trains has exceeded expectations. “Lucknow-Delhi Tejas is nearing break-even in the first quarter itself (against expectations it would take two years). So, we are highly encouraged with this and Ahmadabad-Mumbai is performing even better, occupancy wise," said Mall.
According to G. Raghuram, director at Indian Institute of Management Bangalore and an expert in transport infrastructure, the Tejas experience shows that the time is ripe for private firms to tap the market. “Through this project, the railways will discover the true price-demand-service sweet spots...and all private trains need not be high-end—a pilgrim express for low-end customers can (also) work well. In the next phase, PPP can come into hard infrastructure."
Red flags
But while some are clearly gung-ho about the opportunities that lie ahead, there are clearly innumerable red flags along the route too. Imagine a situation where two trains are delayed due to fog on the same route – one run by the railways and another by a private firm. It may not be an easy task to decide who gets priority. The experience of private freight trains has been telling in this respect.
“Since railways are also running container trains, we receive the stepchild treatment," said a senior officer with a private freight operator, who did not want to be named. “They promised us a level-playing field but did not implement it. We have invested crores (of rupees) and have no option but to stay put. The railways won’t even guarantee the time my cargo train will take to reach its destination and this has affected our business."
When private firms and railways run trains on the same tracks, the question of “priority" is unavoidable, concurs Sreedharan. “This will introduce corruption as private operators will try to bribe their way out of the problem."
And with Indian Railways expecting an investment of around ₹22,500 crore from the project, the stakes may be high. That may bring up the age-old question that surfaces with most attempts at privatization in India: who reaps in the revenue, the government or the government official?
At this stage, very few independent experts are convinced that any benefits would accrue to the revenue flow of the railways. “How will private trains make money for the railways when premium trains like Rajdhani are losing money?" said Partha Mukhopadhyay, senior fellow at Delhi-based think tank Centre for Policy Research.
The biggest and most unique challenge, however, will be “the railways will be a competitor and a (de facto) regulator of private trains," said a Delhi-based infrastructure consultant, requesting anonymity. “Sectors like aviation and telecom succeeded because the government was willing to withdraw from these areas. But is the government willing to withdraw from railways and by how much? Is it ready politically?"
