UK: Rail privatisation has been a failure. Why is India pursuing it, and why is the Indian rail network a bad idea?

Guwahati: The Indian Railways are in desperate need of finances, as it is well known. Huge expenditures are required if the country’s rail network is to be properly reinforced and its capacity increased by increasing train speeds and introducing dedicated freight lanes.

Who will be in charge of the investments? Governments built all of the infrastructures that we see in industrialized countries. No private player has the desire or capability to do so. Investing in railways pays off as well.

According to an economic assessment done by economist Arvind Subramanian, investing one rupee in railways creates five rupees in the economy. The Chinese government invests 11 times more in infrastructure than India’s, and three Chinese government-owned enterprises are already among the Fortune 500’s top five.

According to a study by the Comptroller and Auditor General of India, or CAG, the operational ratio of the railways for the fiscal year 2019-20 was 101 percent. This indicates that if the government’s income was 100 and its expenses were 101, the operating ratio would be 98.36%.

Furthermore, the railways must set aside money from their own revenues for their pension fund. In 2019-20, the required appropriation for the pension fund is Rs 48,350, and if this amount is added, the operating ratio will worsen to 114.19 percent. Similarly, under updated estimates for 2020-21, the required appropriation to the pension fund is Rs 51,000 crore, bringing the operating ratio to 131.49 percent.

We need dedicated freight lanes and express lines to meet the rising demands of an industrial economy, but the railway cannot mobilize resources on its own. And when it comes to infrastructure investment, the private sector is not forthcoming. As a result, the government’s capital expenditure is the sole source of support left.

It’s crucial to grasp the incumbent government’s position in order to comprehend the current privatization attempts. The rail budget was combined with the union budget in 2017, with the intention that the railways would fund their revenue expenditures from their revenue earnings, while the ministry of finance would give the Gross Budgetary Support, or GBS, as is customary for Capex.

The ministry of railways’ annual plan for 2020-21 was targeted at Rs 1,61,042 crore, with GBS of Rs 70,250 crore, internal resources of Rs 7,500 crore, and Extra Budgetary Resources, or EBR, of Rs 83,292 crore, according to the standing committee on railways for 2019-20. However, the GBS has lowered by Rs 41,000 crore in the revised budget, to barely Rs 29,250 crore.

The finance minister outlined ambitious railway plans in his 2021 budget statement. A National Rail Plan, or NRP, for India, has been proposed. It’s a 30-year plan that runs from 2021 to 2051 and calls for Rs 38.5 lakh crore in investments. By 2031, the goal is to have a “future-ready” train system.

According to the NRP, all freight trains, as well as 30% of the 750 railway stations, will be privatized by 2031. All profitable AC coaches will be privatized as well. The railways will only be left with loss-making second-class passenger trains. Surprisingly, the private player only needs to invest in railway operations. The rails, as well as the driver and guards, will be from the railways. The railroads will also maintain the stations, while the Indian Railway Catering and Tourism Corporation, or IRCTC, a division of the Indian Railways, would handle reservations.

This means that the Indian Railways will only operate loss-making passenger trains, while the private sector will operate all profit-making trains. Will not the railway losses increase because the profit is only from AC trains?

In the first instance, how much money will the railway make from privatization? Only haulage charges, such as station fees, railway engines, tracks, signals, and overhead electricity, as well as driver pay, would be collected. Private parties will be free to offer any price they like and may use dynamic pricing, as in the airline industry. If you ask how much of the profit from all the private investment goes back to the public, the answer is that there is no data.

It’s worth mentioning the case of Reliance Infrastructure, which shut down the Delhi Airport Link Metro in July 2012 after a little over a year of service due to a lack of profit. The Delhi Metro Rail Corporation, or DMRC, had a 50-50 investment sharing arrangement with Reliance for the development and maintenance of the airport line. The project cost Rs 5,800 crore in total, with the DMRC contributing Rs 2,915 crore. Reliance was supposed to cover the balance, but they delayed the entire investment due to substantial cost-cutting measures. The metro project was discovered to have a weak structure with leaks and flaws after it was completed.

Furthermore, Reliance set a charge of Rs 150, estimating that 44,000 passengers would use their services per day. However, this did not occur, and there was no profit. Reliance suspended operations in the middle of the project, forcing the DMRC to take over. They reopened the line with a charge of Rs 50 after repairs, and the passengers returned.

It has been demonstrated time and time again that the private sector will not invest in infrastructure since it has a long gestation period and requires them to wait for the reward. The Indian Railways is motivated by a social commitment to serve people with basic transportation services, and it creates the groundwork for a variety of small and medium-sized businesses. As a result, privatizing the railways entails privatizing profit while imposing losses on the public sector.

However, this is the first part of a two-part series on the government’s privatization plan for the Indian Railways.

As talk of privatizing Indian Railways heats up, the Narendra Modi government would do well to learn from the United Kingdom’s experience.

The railway system in the United Kingdom began to grow in the nineteenth century. It was principally operated by four significant corporations that were all nationalized in 1948.

The nationalized railway suffered losses, owing to shoddy network construction that rendered huge sections useless and rendered the system unable to compete with automobile transit. The network was further reduced after the Beeching Report in 1963 because most of it was underutilized and unprofitable.

Critics argue that this isolated rural towns and the countryside by making the economy London-centric. The British government began segmental privatization of the network in 1994, resulting in the current franchise system, under which 25 companies, including British Rail, operate trains throughout the country. Another firm, Railtrack, maintains railway infrastructure such as rails, signaling, and stations, while freight is handled by six other companies.

The British public favours renationalizing the train network, according to several polls, and pressure is mounting on the government to do so. The Welsh Government returned the Wales and Borders franchise to public ownership on February 7. Similar measures are expected in other parts of the UK.

The Indian Railways are the backbone of the country’s economy, transporting people and goods at low prices on a daily basis. It has also aided the socioeconomic growth of small towns and cities by facilitating the flow of people and products and connecting industries to markets. Before the pandemic, the railways averaged 13,169 passenger trains and 8,479 freight trains per day, carrying 22.15 million passengers per day in 2019-20.

The majority of the employees polled are members of unions, and they say that their unions aren’t doing enough to educate them about the privatization or taking steps to prevent it.

In the Indian Railways, there are various federations and unions. They are members of central trade unions; however, they do not go on strike with workers from other industries. The railway unions have not participated in any of the strikes that have taken place since 2016, where one of the key objectives has been to block privatization.

According to Ramalingam Elangovan, deputy president of the Dakshin Railway Employees Union, or DREU, railway unions frequently organize their own campaigns but do not join the national mainstream of battles of central trade unions and federations.

In the midst of the pandemic, unions have found it difficult to respond to the privatization push. However, as soon as it was announced that 151 trains would be privatized, they expressed their displeasure. Protests have been organized at railway stations by trade unions such as the Loco Running Staff Association and the DREU. Citizens, railway personnel, and unions organized campaigns to renationalize the rail network in the UK, such as “Bring Back British Rail,” “Power for the People,” “Action for Rail,” and “We Own It,” to educate the public about how privatization had harmed their transportation system. Such movements have raised awareness in the United Kingdom and around the world about the need to invest in environmentally friendly modes of public transportation in order to secure a sustainable future. They understand that private corporations exist solely for-profit and are unaccountable. Why can’t the public own a public service that the public uses and pays for?

Instead of privatizing its railway network, India should seek to strengthen and extend it.

This is the second part of a two-part series on the government’s privatization plan for the Indian Railways.

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