Vol. XLI No. 38 September 17, 2017

Railway Reforms: Pursuit of Profit Trumps Public Interest


NEO-LIBERAL economic policies are set to unbound the Indian Railways, the country’s largest public transport. “Rail by market and not by the government” is the mantra of the Modi regime. The Indian Railways is crying for funds for capacity expansion and safety, but the government refuses to acknowledge it. Why should this network be a “Sarkari monolith”? -- is the argument forwarded by the propagators of its privatisaion.

The Debroy Committee Report

The Committee for Mobilisation of Resources for Major Railway Projects and Restructuring of Railway Ministry and Railway Board, headed by NITI Aayog member Bibek Debroy, has directly recommended unbundling of the Indian Railways, splitting it up vertically and horizontally. It has bemoaned that in spite of several initiatives taken by the governments for some years to rope in the private sector, “private sector has been muted particularly when compared to other sectors”. The committee came to conclusion that this was because the “policy-making, regulation and operations are vested within the same organisation”, that is the Railway Board. It says that the private sector sees this as suspect and hence is not attracted towards investment in the railways. “An atmosphere of trust is absolutely necessary for private sector entry. Hence it is imperative to split the roles of policy-making, regulation and operations”. The cat is out of the bag!

Like in every other sector, a great deal of activities under the Indian Railways have been outsourced already and there is estimated four lakh contract employees working side by side with regular employees. They are paid a pittance of Rs 6,000 to Rs 9,000 a month, exposing the severe exploitation of labourers in a naked form, and their number is increasing as more and more activities are thrown up to the informal sector. This is not enough, feels the government.

To start with, the Debroy committee directs to straightaway allow access to private operators for loading and unloading of goods on new tracks being built by the Dedicated Freight Corridors Corporation of India Ltd. (DFCCIL). It says that “anyone who runs trains on DFCCIL should pay directly to DFCCIL and not to the Indian Railways”.

In August 2014, the government had allowed 100 per cent FDI in construction, operation, maintenance, rolling stock, dedicated lines, train sets, etc. Thus, almost whole of the activities performed by the Indian Railways have been thrown open to FDI. US behemoth General Electric has bagged the contract for setting up a diesel locomotive unit in Mehrora, while French firm Alstom has got the one for an electric locomotive unit in Madhepura. The deals are worth Rs 40,000 crore. The cost of locos that would be turned out by these two units is estimated to be 2-3 times of those coming out of the Indian Railways-run manufacturing units. There is an assured take-off of 1,800 locos over a 10-year period, apart from allowing maintenance of the locos in the sheds run by the two companies. There is a direct threat to the already established units such as the CLW in Chittaranjan and DLW in Varansi as also to the several loco sheds put up in various parts of the country. Private sector entry is to be permitted for the upcoming wagon, loco, coach units in eight more places. A former member of the Railway Board, R C Acharya, while decrying the Debroy committee report, had highlighted the fact that the country saved Rs 20,000 crore annually in lieu of manufacture of the rolling stock in India.


The private sector is sought to be roped in the forms of service contracts, joint ventures and private ownership. The Debroy committee has recommended forming a Railway Regulatory Authority to provide level-playing field to private players. It wants the regulator to decide on tariffs, operations and keep the Indian Railways away. It underlines “the need for independent umpire. The private sector will come only if there is fair and open access to infrastructure.” The Union Cabinet has now decided to form a Railway Development Authority (RDA). The Ministry of Railways as a policy maker will “ensure competition in railway sector and encourage private entry and private investments”. But, experience in several countries and several sectors such as roads, airways and banks shows that the private sector will “cherry pick” the most lucrative traffic. Also, we have seen elsewhere that hidden subsidy to private companies will be showered in the form of low access charges.

The report insists on a separate infrastructure company to be formed as a special purpose vehicle initially and then listed on stock exchange, delinking from the Indian Railways. It is suggested for a major overhaul of the Indian Railways’ accounting system on commercial lines to lay a framework to cost its businesses, services and activities. Around 400 railway stations are marked for “development” through the private sector.

Failures Galore across Globe

The report has referred extensively to experiences from several countries. British policy is being discussed a total failure. The separation of infrastructure and operations turned out to be fateful decision. Rail track has since been nationalised. Committees formed to evaluate the accident in Britain and Australia have pointed out that lack of coordination among different companies in infrastructure, track and operations was one of the major causes, with each trying to maximise its profits at the cost of safety. In the UK, the private companies resorted to major fare hikes to recoup losses. Rail companies allowed to walk away from their obligations leaving the tax payers to bill their services! After the failure in the UK, other European countries have adopted wait and watch attitude. The worst case is found in Argentina, where after privatisation, only 8,000 km of the 35,000-km track is in use and the rest has been abolished!


The committee strongly recommended Railway Budget to be “phased out” and this was promptly carried out by the government. “Indian Railways should focus on core activities” and “to compete with the private sector”. For this, it has to shed off the so-called non-core roles such as security, schools, hospitals, production and construction units. The employees’ welfare will be thrown to the winds.

Rationalisation of fares is the watchword. Burden of suburban fares will be thrown upon the state governments in the form of joint ventures. The investment priorities will be refocused on remunerative projects -- which essentially means that commercial interests only will reign and people’s needs not the goal. Large food chains such as McDonalds and KFC will be encouraged to provide onboard catering -- prices of which may outsmart travel fares!

In view of the major shift in railway management, recruitment in the Indian Railways will be stopped and the thousands of vacant posts nullified. In Argentina, after reforms, 80,000 employees out of 95,000 have been retrenched. Any public transport in any country is not a profit-making venture. Our ‘Metro man’, E Sreedharan has stated this loudly. Ambani had walked out of the Airport metro project in Delhi after realising that the returns were low. The Delhi Metro had to take over. The Ambani-led metro in Mumbai charges three times the prices it committed before the start of the project. GMR Airport under the so-called PPP mode is supposed to be the costliest airport in the world. The fate of the 400 stations to be handed over to corporates can be visualised.

Safety has become a causality in this process. Accidents are reported very frequently. Whopping 1.6 lakh vacancies in safety departments, lack of will to implement recommendations of various committees such as the one led by Dr. Anil Kakodkar, slow progress in replenishment of over-aged assets, tracks, tardy modernisation are learnt to be the causes, which are given a deaf ear.

The escalating costs due to private sector participation will have to borne by the user, as per market principles. The Indian Railways, known to be the cheapest mode of transport, will now turn out to be a high cost network. But nay, the conflict will now be between pursuit of profit and shareholder value versus public interest objectives, as the biggest public transporter gets into big bang reforms mode. Depending on private investment is hallow, particularly in the light of slowdown of manufacturing and the overall economy. Only public investment can kick-start the economy, railways included.