Competition is good. It helps bring efficiency, better quality and prices for consumers. We have seen how allowing the private sector in telecom transformed the sector. Gone are the days when making a phone call was an expensive affair and also the reliability of the service was low. 

Indian Government is planning to allow the private sector to operate passenger trains. Railways is a utility and here the ways in which private can be allowed is different.

Setting up rail tracks requires large amounts of investments and land. Acquiring land and getting all the required clearances is a big challenge. Private sector should be allowed to use the tracks that are already laid out by Indian railways. Model similar to airports where the airport operator runs the airport and airlines use the airport infrastructure, slots and pay the predetermined rates.

Why is Indian Railways keen to get private sector to run passenger trains:

Indian Railways have a congested system where freight and passenger trains each jostle to get the required route time. Indian Railways have been working on two very large projects – Dedicated freight corridors where it plans to lay special tracks only for freight trains so that they can run unhindered at higher speeds. Once they start, a bulk of freight traffic (~ 70%) will move to the Dedicated Freight Corridor. This will ease up capacity on the traditional routes.

These routes are traditional high demand one and have a high waiting list. Railway doesn’t have the resources to introduce new passenger trains. Moreover, due to high cost and controlled ticket prices, railways recover only 57% of its cost in passenger segment and rest is cross subsidised from Freight revenues. 

So letting the private sector invest in the passenger segment – it can : 1. Earn a fixed charge to cover the cost of its infrastructure, 2. Better capacity utilization of its capacity, 3. Better service for passengers 3. Reduce its losses. 4. Reduce its own investment commitments.

So how will this work:

Railways will get private players to bid for specific routes. There are certain eligibility criteria for players to bid. The entity which offers the highest revenue share will get to operate the route.

Additionally the railways will charge for usage of its infrastructure (standard haulage charge).It will cover  the cost of using railway terminals, physical transportation of the train, track maintenance, signalling and overheads.

The cost of the energy used by the trains will be paid in actual.

Railways will set certain performance benchmarks which the private players need to meet.  Private players will have the freedom to decide their fare and non-fare revenues. Also set service standards. Decide the number of stops etc.

Level Playing field:

Railways would be required to give equal access to private players on its network. Ideally, there should be a regulator which would decide on disputes and set the rules of the game.

Way forward:

Allowing the private sector in Railways is a great move. Railway has already experimented with its own PSU – IRCTC running private trains. This move can be seen more like leasing out the route than privatization. Under the present plan, railway plans to lease out 100 routes to private players to run 150 trains.

No reform is perfect, and it is important to start. One can always improvise along the way.

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