Privatization of Indian Railways.(pros &Cons)

Privatization of Railways

-Economic Development

1. Of the Rs 50 lakh crores planned to be infused for development of Indian railways, only a part can be financed through the Budget 2020 and the rest to be met by Private players.

2.  So, GoI (Government of India) decided to open some of the busiest passenger train routes to private players.

Why are Private players required?

1. During normal times, demand for train seats is more than the supply. This leads to huge wait-lists, overcrowding of trains and loosing of business to other modes like road and air.

2. The Indian Railways (IR) passenger segment is a loss-making business as only 57% of cost is met through sale of tickets and the rest is cross-subsidized through freight operations.

3. There is stiff competition between passenger trains and freight trains on the overcrowded IR network.

4. The opening up of Dedicated Freight Corridor will easen the IR network for passenger train segments and will be an opportunity to engage private players.

5. Also there are budgetary constraints for GoI to modernize the IR.

6. So, by allowing private players to invest in IR, the railway sector can be holistically developed.

How beneficial will this be?

1. As per IR estimation,  privatization of some routes will infuse about Rs.30,000 crores in the development of Railways.

2. GoI has identified some busy routes across India for private players to run trains for 35 years. This constitutes 5% of the total capacity of IR.

3. The private players need to invest in rolling stock (coaches and engines), services inside the train etc. the only precondition is that trains introduced by them should be superior than IR.

4. The private investors are also estimated to get an Internal rate of return (IRR) between 17 to 27%.

5. Though private players are free to fix the prices of the tickets, they need to share revenue to the IR for a period of 35 years.

What will IR and Private players get?

IR from Private players

1. The private players agreeing to share the maximum revenue to the government wins the bid.

2. IR also will get standard haulage charges for utilizing railway infrastructure.

3. The private players also need to satisfy some performance criteria such as punctuality, service reliability etc, failure of which leads to levying of penalty on them.

Private players from IR

1. IR needs to provide non-discriminatory access to private trains and cannot give unfair advantage to their own trains.

2. IR will provide land to private players to setup maintenance facilities for the trains and let them use washing lines to wash, clean and periodically inspect trains in its facilities.

3. The tickets of private players can be booked through the current railway reservation system but money will be kept in an escrow account.

When did Private players enter IR?

1. IR has monopoly over the passenger train segment but private players were allowed to own and operate trains in the freight segment.

2. The container cargo business was already opened for private players and they can decide their own rolling stock and business model.