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Railway privatisation: India must hasten slowly

Indian Railways has launched itself on the road to privatisation by flagging off the Tejas Express running between Lucknow and Delhi and announcing plans to privatise the running of as many as 150 passenger trains.

This is an ambitious target, and global experience in privatising railways services has been mixed. So it is essential to tread with caution. Ideally, the move should have been preceded by extensive public discussion, but that has not happened.

The Tejas Express will be run by IRCTC, a subsidiary of the Railways. So there is not much of real privatisation there to begin with. IRCTC cannot have been expected to drive a hard bargain for itself, but that will happen when full-fledged private firms bid for various tasks.

It is difficult to privatise a portion of the Railways’ operations (total privatisation is not even being contemplated) as it is strongly vertically integrated. Logically, tracks and signalling, common resources accessed by all private train operators, should remain in state hands. But this can also be privatised much later, if at all.

British example

Privatisation is likely to take two steps forward and one step back, like the latest development in the UK — which embarked on the journey in the 1990s — seems to indicate. The Queen’s recent speech to outline the government’s legislative agenda contains plans to scrap the existing rail franchise system and replace it with a new one based on performance and reliability, using recommendations by the Williams Rail Review.

In fact, privatisation of what was earlier the British Rail has through the intervening decades politically been hugely contentious. Those sceptical of privatisation argue it has not worked as fares are higher, there are more delays, the franchising system is floundering and passenger dissatisfaction is high.

On the other hand, those in favour point to the rise in public use of the railways to argue that the system works. The problem is that independent socio-economic changes — rise in fuel costs, greater road congestion, lower unemployment — have raised the number of rail journeys undertaken. So public use cannot be cited.

Ideology apart, independent studies would indicate that the British public has generally been satisfied with the experience of privatisation, its satisfaction level being ahead of France, Germany and Italy and behind only Finland. Punctuality was initially high, but fell after new restrictions were imposed post the 2000 Hatfield accident; it has recovered since. Safety on British railways has improved after privatisation. Government subsidy per journey has fallen, but expectations of cost-cutting under private operation did not materialise. The train company’s operating cost per passenger mile has reduced.

It was expected that privatisation would remove the railways from short-term political control, but this has not happened. The industry can be said to be under greatergovernment control than ever. When the borrowing requirements of Network Rail to replace the collapsed Railtrack were taken over by the government, it amounted to renationalisation. Also, many of the private franchisees are owned by foreign government companies. So privatisation, in a sense, has not taken place in the UK.

Simplifying the ordeal

Where privatisation has indisputably worked is Japan. Five of the seven companies into which Japanese National Railways was broken up in 1987 were in the black last year. What has helped is the companies being allowed to run commercial and real estate businesses, so they are able bear the cost of upkeep and improvement in services. Another good idea was splitting the legacy railways on basis of geographical area, not functions like tracks and trains. This has helped get round the difficulty of breaking up a highly integrated operation like the railways.

In India, the social importance of the Railways will grow with climate change concerns, leading to greater use of public transport. The Railways has taken the positive step of shifting to renewable energy over time, and so is a public good whose use goes beyond paying its keep. On the other hand, private ownership tends to improve services and cut costs, particularly under conditions of competition. When the public suffers due to the perceived laid-back attitude of a state-owned enterprise, support for privatisation grows.

But ensuring competition within a public utility needs complex regulation that has to offer a level playing field to all players sharing common infrastructure. The quality of regulation that a country is capable of is critical, and crony capitalism can become retrogressive.

It is also vital for the Indian Railways, steadily losing market share to fossil-fuel burning road transport, to reverse the trend. But neither workers nor management appear to be delivering results. Recently, the Planning Commission sought to take away the task of developing key stations from the hands of the Railway board and pass it on to a group of secretaries, because of lack of progress. So, the case for privatising parts of railway operations has gained from the way they are currently run.

The writer is a senior journalist

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