IR require the private touch

Indian Railways are a public industry undertaking in India, meaning that the Government owns and operates the entire enterprise of passenger rail and cargo traffic in India. How efficiently it is run is a function of how efficient the Government is in general. The evidence from the other sectors in which the Government operates makes one suspect that the railways are not an exception.

In the last post on this matter I had estimated that just the waste of two resources used for the tracks – concrete sleepers and steel rails – amounts to between USD 3 and USD 10 billion. These numbers are order of magnitude estimates only. The actual figures can be easily obtained if they require were to arise. Which is where the problem lies: there is no require accounting for waste and inefficiency in a publicly-owned large enterprise? There is one major difference between private industry and public industry enterprises. The former have to operate within hard budget constraints while the latter is generally free of it.

The other pertinent fact is that the Indian railways are a public sector monopoly. Monopolies, public or private, are generally bad for the economy. There are circumstances under which the production of a good or service is best provided by a single entity instead of through a competitive marketplace. It could be for technical reasons such as when there are very large fixed costs associated with the production of a good or service.

I will not go into the analytical arguments of why the Indian railways should not be a public industry monopoly – there are many and some of it quite technical. Instead, my argument is simply that the Government is incapable of providing an excellent rail-based backbone for an efficient country-wide transportation system. The Government has proved itself incompetent in even those essential functions that a Government should do such as public security, law enforcement and courts. There is no reason why the Government should be in matters such as civil aviation and other businesses which the private sector is quite capable of providing and which are best provided through a competitive market.

One way ahead would be to horizontally segment the Indian railways. The public industry could continue to own the land on which the Indian railways operate, but the task of actually running passenger and cargo services could be given over to private industry firms that operate in a competitive market.

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