[Answered]“The efficiency of the Indian railways has dropped to its lowest in the last decade, according to recent CAG report.” In light of this discuss whether privatisation of railways would help increasing the efficiency of Indian railways?

Demand of the question

Introduction. Contextual introduction.

Body. Need of privatisation in Indian railways. Various consequences of privatisation.

Conclusion. Way forward.

The Indian Railways is the world’s 2nd largest network in terms of track length and the largest network in terms of passenger traffic. The organisation’s financial health worsened in recent years as its earnings from passenger traffic grew at a slow pace while its expenditure on salaries and pensions multiplied. In FY2018, the efficiency of the Indian railways reached its lowest in a decade, according to a recent report by  the CAG. Privatisation in railways can help Indian railways to earn profits and increase efficiency. So far, the private sector’s participation in railways has been very less in India, compared to sectors like ports, telecom, electricity, airports and roads.

Need of Privatising Indian Railways:

  1. The Indian Railways is one of the few government-owned enterprises which is incurring losses year-after-year.
  2. Indian Railways has not been able to keep pace with modernisation of its infrastructure and services and has not been able to expand at the pace and coverage that a country like India needs.
  3. Almost all arms of the railways require modernisation of equipment, processes and training, all of which are still continuing as they have been, through the decades. The result is that the railways continue to be a drain on the exchequer, while continuing to provide vital services inefficiently.
  4. Freight fares in railways are kept high to cross-subsidise the passenger segment. Rail Development Authority has been approved to determine rail fares to enhance affordability and utilise capacity in an efficient manner.
  5. Railways owns large tracts of land along its tracks, in various parts of the country and this can be optimally monetised by inviting private players to invest, build and manage properties that may be developed on these lands.
  6. A strong argument in favour of privatisation is that it will lead to better infrastructure which in turn would lead to improved amenities for travellers.
  7. Private ownership is synonymous with better maintenance, thus it will reduce the number of accidents, resulting in safe travel and higher monetary savings in the long run.
  8. The main argument for privatisation is that private companies have a profit incentive to cut costs and be more efficient. A private firm is interested in making a profit, and so it is more likely to cut costs and be efficient.
  9. It is argued that a private firm has pressure from shareholders to perform efficiently. If the firm is inefficient then the firm could be subject to a takeover. A state-owned firm doesn’t have this pressure and so it is easier for them to be inefficient.

Possible fallouts of privatisation of Indian Railways:

  1. An advantage of Indian Railways being government-owned is that it provides nation-wide connectivity irrespective of profit. This would not be possible with privatisation since routes which are less popular will be eliminated, thus having a negative impact on connectivity.
  2. Given that a private enterprise runs on profit, it is but natural to assume that the easiest way of accruing profits in Indian Railways would be to hike fares, thus rendering the service out of reach for lower income groups. This will defeat the entire purpose of the system which is meant to serve the entire population of the country irrespective of the level of income.
  3. Private companies are unpredictable in their dealings and do not share their governance secrets with the world at large. In such a scenario it would be difficult to pin the accountability on a particular entity, should there be a discrepancy.
  4. This move would render thousands of railway employees in production and ancillary units jobless in the long run.
  5. Privatisation creates private monopolies and thus, it needs regulations to prevent abuse of monopoly power.
  6. To please shareholders, the private players may seek to increase short term profits and avoid investing in long term projects. For example, the UK is suffering from a lack of investment in new energy sources; the privatised companies are trying to make use of existing plants rather than invest in new ones.

Bibek Debroy committee has suggested privatisation of some operations in Indian railways. Privatisation of Indian railways can make it more efficient, but it may turn railways unaffordable to many poor people. In order to keep Indian Railways affordable for the lower strata of the society (post privatisation), the government must offer subsidies and tax incentives to companies that would provide low cost services, similar to low cost airlines, to these very pocket of population. This in the long run would make railway network more efficient and affordable.

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