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Indian Railways has Opened Doors to the Private Sector


By Mahima Kapoor
Indians Railways has launched the process of opening up train operations to private entities on 109 origin-destination (OD) pairs of routes using 151 modern trains. The present bid is only for a fraction of the total train operations – 5% of the 2,800 Mail and Express services operated by Indian Railways. The railways have moved ahead with a long-pending plan, setting a tentative schedule for private train operations, expected to begin in 2023 and in 12 clusters.

WHY SUCH A MOVE?
Ø  The Railway Board says five crore intending passengers could not be accommodated during 2019-20 for want of capacity and there was 13.3% travel demand in excess of supply during summer and festival seasons.
Ø  The overall objective, however, is to introduce a new train travel experience for passengers who are used to travel by aircraft and air-conditioned buses.


WHY IS THE MOVE SIGNIFICANT FOR INDIAN RAILWAYS?
·     For the Railways, one of the largest organizations in the country, operating not just trains for passengers and freight, but also social institutions such as hospitals and schools represents a radical change.
·     It was estimated that a one-rupee push in the railway sector would have a forward linkage effect of increasing output in other sectors by Rs.2.50.
·     The Debroy committee found this significant to take the 'Make in India' objective forward. It asked for the entry of new operators "to encourage growth and improve services."
·     The panel also noted that passengers were willing to pay more if they had guaranteed better quality of travel and ease of access.

NOW THE QUESTION ARISES, WILL THIS STEP BE SUSTAINABLE?

The strategy of below-cost pricing will make it difficult for the private sector to compete. On the other hand, higher prices needed to cover the costs might bring them in direct competition with airlines, pricing them out of the market. Apparently, private operators would have to raise the level of their offering even higher, to justify higher fares, and attract a segment of the population that is ready to pay for the difference. The government would have to explain that it has monetized its expensive fixed assets such as track, signalling and stations adequately for the taxpayer, who has paid for them. Apart from all the challenges, Will the private players able to cover the losses that our Indian railways even couldn’t able to? Will the higher prices let them stay in the market?

Well, the topic is quite debatable. As per the NITI report, 77-80% of total losses in the passenger segment are in the non-suburban segment, within which IR incurs losses in all classes for 3rd AC. The proposed model if scaled up, could help IR reduce such losses and allow it to have profitable earnings.On the other hand, to depend upon disinvestment for loss coverage will be problematic. However, critics argue that bringing private players in will affect the affordability and inclusivity factor that the railway is known for which will make it difficult to stay.

This is a rational decision but these are just estimates. Real repercussions can only be known after implementation.


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