Rails on Crossroads: Getting Indian Railways Back on Track

Mostly stowed away in a corner today, one of the earliest memories of travel in the most influential consumer segment, the Single Wealthy Urbanite, would be a comfortable and chilled out rail journey, marveling at the grandiose of trains as kids, gobbling up packed home-made food with a mix of hawked snacks, looking out at the scenic views through the windows sipping tea and coffee at regular intervals, and climbing up and down makeshift beds.

There used to be a charm attached to rail travel, and it has for a few decades enjoyed being the monopoly of monopolies offered by virtue of being an essential service that faced zero competition and had almost no alternatives.

Somehow though, Indian Railways has lost its pole position and is losing passengers to air and road travel in respective distance categories, and significant percentages of freight traffic to ship, air and road travel.

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Among other announcements and uproars that the Union Budget 2020-21 created, there was one that might end up giving a jolt to the largest monopoly in India, the Indian Railways. It is debatable if the jolt would be a life-saving one or not.

Of all the announcements concerning the Railways, the following three stood out:

1. The Indian Railways will set up a Kisan Rail through a public-private partnership model.

2. Four station redevelopment projects and operation of 150 passenger trains would be done through PPP model. The process of inviting private participation is underway.

3. More Tejas type trains will connect iconic tourist destinations.

Privatization in a developing economy can one, be preventative acting as a driving force steering away from stagnation. Two, it can also be curative, to pick up the mess already created. Three, privatization can be aimed at utilizing the private sector’s skills and operating under one congregated organization.

With the public frenzying over the Railways being privatized, we should understand that only certain parts and services are being opened up to private investment, with Railways Minister Piyush Goyal clarify, “Our intention is to give better services and benefits and not to privatise railways”, it seems like the Indian Railways is already on the third path.

The Vande Bharat Express, earning Rs. 93 crore in its first year of operation, has set a nice precedent to follow.

With the FM already having announced in July 2019 that the government looks to invest Rs. 50 trillion in the Railways between 2018 and 2030 to improve infrastructure and services, it is a heavy indication of how the government plans to invite the private sector to participate in this sector which has always been strictly been the government’s territory.

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The Railways has led privatization efforts in bits and pieces since long. Since, it is an exponentially growing infrastructure which stands like a backbone for the country, meeting demands through such efforts is justifiable.

“Renewable energy sources” is one such area. As climate change is becoming a pressing issue each day, it has laid out a 6-step mission for making use of alternative energy sources to power itself. In more quantifiable terms, they have set a target for themselves of meeting 25% of their energy requirements from renewable resources by 2025. The Railways has also proposed setting up of solar farms along track lines on already acquired land to help in its green mission. Adding to the mission, net-zero carbon emissions is where they see themselves 10 years down the line.

Moreover, it also led an IPO for IRCTC in 2019 selling 12.6% of government stake in the company. All of these efforts point towards a general mindset of making the Indian Railways sustainable, efficient and that private sector’s help is going to be necessary to achieve desired results.

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The main focus currently seems to be on the introduction of 150 privately operated trains to be operated on 100 routes, much like the Tejas Express. Even Vande Bharat’s earnings of Rs. 93 crores in the first year of operation have been quite encouraging. Private firms will be allowed to bid for winning the rights to operate these trains.

Certain advantages will be given to private trains. To start with, they will have a head-start over government trains running on the same routes. They will also have a higher control over fare prices. With a profitable proof of concept already in place, it does not seem like a blind investment for private players in the industry.

Privately operated trains, in essence, is a completely new concept for Indian Railways. The skepticism raised is justified given that it is IRCTC that runs the Tejas and the Vande Bharat and is a subsidiary of Indian Railways and an insider of sorts. There are a few issues that need to be addressed before we can be assured of its viability.

The unbalanced growth rate between the infrastructure of the government and the private sectors is a reality and is expected to throw in more than a few challenges. Running high speed trains with speculated expensive services on the same tracks that are now old, cluttered and overworked is not going to last the rosy dream for long.

It's also quite possible that the motives of for-profit organizations might not coincide with what the government has to achieve. More than pennies earned, the government looks for penetration. Maximizing reach and profit with higher fares and a disturbance to regular operations is not a shot in that direction.

Reduction in air-fares is another likely cause of concern for the industry. It would further push general opinion on the results of the reform towards something that is over and above the essential service adding greater comfort and luxury as compared to something that is a requirement and is easier to scale with.

With a heavy per km charge and a possible revenue-sharing model under discussion, the ability to exercise a greater say over fares will ease out the investors. Private trains will have regulatory restrictions in place. A lower limit of 16 coaches per train has been set with a cap on the maximum speed of operation. Also, an individual bidder can only be successful in getting a maximum of 2 clusters (12 trains each) out of the total set of 12 such clusters.

The successful Tejas Express, run by the IRCTC.

Uncertainties in these areas will last longer. However, in some aspects of infrastructure development for railways, 100% FDI has been given way. Additionally, the way FDI has been increasing indicates that the confidence is high. It is interesting to note that a considerable fraction of the companies that have indicated interest in the bidding process are based out of India.

From consumers’ view, overhaul in the service quality can be expected along with perks like free travel-insurance for the passengers.

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This is a gradual step towards inclusive growth. The outlook is necessity-driven for aid from the private sector. The investment targets outlined by the government for the Railways are close to insurmountable with a meagre rise in overall budget allocations for the sector. For example, the Railways only saw an approximate rise of 3% in its budget allocation as compared to last year.

Collaborations with better skilled and more efficient private entities at this time, is thus, an inevitable move for a developing country like ours. This shall lead to us being better equipped in accommodating the requirements of an increasing population in the future.