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PRIVATE FIRMS IN INDIAN RAILWAYS

Focus: GS-III Industry and Infrastructure, Indian Economy

Introduction

  • To upgrade the country’s railway system, the government has laid the roadmap for long-term partnerships with the private sector.
  • The government envisages around Rs 50 lakh crore of investment in rail projects up to 2030, but as per the Union Budget 2019, only a part of it can be financed through government coffers, and public-private partnerships are needed for faster development.

Why private players?

  • It is estimated that almost 70 per cent of freight trains, which now jostle for space with passenger trains on the overcrowded Indian Railway network, will shift to the two upcoming Dedicated Freight Corridors.
  • This will free up a lot capacity to introduce more passenger trains with better services and higher speeds.
  • In the normal course, demand for train seats is much more than available, on all busy routes. The result – waiting lists, overcrowded trains, and even losing business to other modes like air and road.
  • Introducing new, modern trains requires heavy investment in rolling stock like coaches and engines, and the cost of operations.
  • As it is, running of passenger trains is a loss-making business for Indian Railways.
  • In this context, to cut its losses and convert that opportunity into a money-making enterprise, the government has decided that some of the trains to be introduced in the future will be run by private companies, in a business model never tried in India before.

Details

  • This move envisages a total investment of around Rs 30,000 crore into the railway system through rolling stock and other expenditure, to be borne by the private players.
  • The only precondition is that the trains introduced by private players are a definite upgrade from what Indian Railways offers.
  • The idea is to give passengers an option of superior train services without the Railways having to spend any money for it.

What kind of companies are expected to run the trains?

  • Since the business of running passenger trains in India has been a monopoly of Indian Railways, no private company in the country has any experience in this sector.
  • Additionally, the invitation is extended to anyone in the world, with or without any experience in train operations.
  • However, Railways has set certain financial eligibility for companies.

How will private companies make money running passenger trains when Indian Railways suffers loss from the same business?

As per internal studies by Railways, private investors may see between 17 and 27 per cent Equity Internal Rate of Return (IRR), translating into very healthy profits.

What will Indian Railways get from the private players?

  • In this business model, the private operator is supposed to share revenues with Railways.
  • The qualifying company that agrees to share the maximum percentage of the yearly revenue with Railways will win the bid.

What will Railways give to the private players?

  • Railways will be contractually bound to provide “non-discriminatory access” to private trains.
  • This means that even though its own trains on the same route will, theoretically, be in competition with the private trains, Railways being the owner of the network, cannot give unfair advantage to its own trains.

-Source: Indian Express

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October 2022
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