Idea of Privatization gives ‘No Guarantee’ of successful performance of Railways

Privatization is no guarantee of successful performance of an organization. Private entrepreneurs can be as much blighted and blinkered as the government can be in running business organizations

Railways Minister Suresh Prabhu has ruled out privatization of Indian Railways, which is a reiteration of the government stand on the subject. Prime Minister Narendra Modi had also rejected the idea some months ago. The stand of the NDA government is not different from that of the previous governments. Privatization is no guarantee of successful performance of an organization. Private entrepreneurs can be as much blighted and blinkered as the government can be in running business organizations. What does the rising NPAs of public sector and private banks suggest? One thing, that businessmen too can go wrong in their projections and operations. Besides, which one business house of India is capable of taking over Indian Railways? And if you give it to scores of them, what guarantee is there that all of them will perform to the maximum making Indian Railways the biggest profit-making organization?

A government-appointed committee headed by economist Bibek Debroy has recommended privatization of Indian Railways, suggesting that the ministry of railways be responsible only for policymaking and private players be allowed to run passenger and freight operations. There are other advocates of privatization who cite the example of Japan. The Japanese government owned and ran National Railways which was plagued with low productivity, high labour costs, loss of share of transport markets and massive debts – pretty much problems similar to what Indian Railways are facing. In the late 1980s, the Japanese government decided to privatize rail operations. It split passenger services into six vertically integrated networks and created a single national freight operator that paid access charges to the passenger companies. Privatization ‘succeeded’ in Japan, according to champions of privatization. Productivity has more than doubled and labour costs have been cut with reduction in staff strength. Should we assume that if an idea has worked in one country it should work everywhere? Privatization of national railways has not worked in the UK, for instance.

The idea central to privatization of national railways is to split the national networks into many networks and hand each over to a company and let the companies compete against each other. A variation would be a public-private mix in which both the private rail companies and Indian Railways operate in passenger and freight sectors. Even to think in these terms, however, we have to first make an assessment of how private sector participation has fared in capital-intensive projects. PPPs have not worked with Indian Railways. One of the main reasons is the demand of the private partner for full freedom on decision making with only half the share in investment. The government cannot be expected to give away its authority to regulate or control decisions. The Indian Railways should definitely work toward decentralization of decision making in order to cut out red tape, but at the same time the private sector must appreciate that PPP does not mean full privatization. Unfortunately, none of the PPP models the Indian Railways tried for doing business with private investors – for station development, construction of freight terminals, and new lines to provide for port connectivity – has worked satisfactorily. To think of going for a wholesale privatization of Indian Railways when even PPP models have not worked is to head for a disaster in rail transportation.

True, Indian Railways have poor finances. Their revenue is inadequate and profit very low. They are unable to meet their operational costs of passenger and other coach services. The government does not have the means to provide fund allocations to it. In short, the Indian Railways do not have the money for development or meeting costs of passenger and freight operations. They need injection of private funds. They need investors who can bring in money, better technology and cost reduction ideas. They can explore the possibility of opening up train operations – both passenger and freight – in certain sections to private sector and see how it works. Introduction of market competition could achieve higher efficiency in rail transport if things go well. But it has to be in parts. And the Indian Railways must keep the ultimate control in its hands in so far as assets such as land and the goals such as larger public interest and employment generation are concerned.