Privatisation: Allow private players to do business directly with public only after Rail Regulator in place

Over the past few decades the railways has been losing share both in freight and passenger traffic. Hence it’s time to take a relook at the behemoth.

The Bibek Debroy-headed committee outlined a seven-year plan for transforming the transport monolith into a “government-owned Special Purpose Vehicle”.

It said the Railway Board should be overhauled to permit the entry of private stakeholders, but refrained from recommending full privatisation of the railways.

The committee called for bifurcation of the railways to separate the functions of track and infrastructure development from the business of operating trains and suggested setting up of an infrastructure corporation to undertake track and signalling work.

Citing examples of railways around the world, the panel recommended creation of an independent Railway Regulator of India to oversee the function of the commissioner of railway safety.

The report made a strong case for transparency and efficiency to attract public-private and foreign investment as the world’s fifth largest rail network suffers from chronic underinvestment.

The upshot of the recommendations of the Bibek Debroy committee is that the Indian Railways is reaching a point where it needs investment which is something Railway Minister Suresh Prabhu had also acknowledged in his budget speech.

The idea of attracting investment in rolling stock is praiseworthy and it can be executed in two ways – One, by allowing private firms to establish their units and then sell to the railways, although this may take a little more time; and two, by privatising the units under the Indian Railways, but this may face political opposition. But the devil is always in the detail. When it comes to the rolling stock, the question will remain as to whether the private initiative will be in just the supply of the stock and accepting a one-time payment, or giving the stock on lease to the Indian Railways.

The more difficult part is the laying down and maintenance of tracks, and how to put a mark-up on the maintenance part. Given the difficulties in land acquisition, will any private party be interested in track laying? The same goes for signalling.

Also the suggestion of the panel that there should be a Railway Regulatory Authority has to be handled deftly so that it does not encroach upon the powers of the Railway Board. This fits in well with the E Sreedharan committee’s suggestion to decentralise procurement to prevent losses due to cartelisation.

What is most prescient is the panel’s suggestion that the railway establishment should be unbundled into two entities, one running freight and passenger trains and the other handling infrastructural work. This will mean the virtual corporatisation of the railway system.

But what is premature is allowing private firms to directly provide the freight and passenger service because the private parties are bound to ask for a free hand in setting rates, and the whole matter may land in the lap of the regulator. Allowing private players to do business directly with the public should perhaps be deliberated on at greater length before a decision is taken.