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DC debate: British Rail to show the way?

Railways required special attention and administration to run such a vast network

British Rail to show the way?

Harsh Kumar Vs R.C. Acharya

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Harsh Kumar - It will add value to the system

Till the late-1940s, private entrepreneurs could book a passenger train and have it run as per their own schedule. Today, one can only book a freight train but it runs as per the railways’ schedule

Privatisation in any domain is a welcome step because it brings capital along with zeal, enthusiasm and commitment of the entrepreneurs to add value to the system. The focus of private enterprise is to find and serve what market demands and in return get rewards commensurate with the efforts.

The railways in India were built and run in the 19th century by a number of private companies. The Government of India had a “guarantee” scheme for private companies, which provided them a guaranteed return on the capital employed by them. Assuring private enterprise of a fixed return takes away the elements of risk from them and is counterproductive. Soon, the government realised the dysfunctionalities of this system and these companies were taken over by the Government of India.

The railways required special attention and administration to run such a vast network which was so vital to defence and economy. Therefore, a separate Railway Board was set up (1905) to administer the system. Gradually, it was realised that the railways were distinct from other departments — besides welfare, it had to be run on commercial lines. This led to the setting up of the Acworth Committee, which deliberated over the relationship of the railways with the government.

Before the end of the 1920s, railway finances were separated from the General Budget. The railways had an obligation to pay a fixed percentage of their income from capital as “dividend” to general revenue and were more or less free to use the remainder commercially. Till the late-1940s, private entrepreneurs could book a passenger train and have it run as per their own schedule. Today, one can only book a freight train but it runs as per the railways’ schedule.

In the 1980s, the railways set up the Container Corporation (CONCOR), that handles most operations, except the running of trains. Subsequently, private parties were invited to set up and operate their terminals and offer trains to the railways. A number of operators registered and also obtained licences. Till the 1980s, most catering units were run by the railway department and only a few trains were given to private vendors. The setting up of the Indian Railway Catering and Tourism Corporation (IRCTC) changed this and gradually all units and departmental staffs were transferred to the IRCTC, which invited private entrepreneurs to run catering services. Most readers must have formed an opinion about privatisation through their personal experience or through the personal experience of their near -and-dear ones.

The railways had privatised parcel traffic by leasing out parcel vans. Here, the private entrepreneur s aggregate “small” traffic and are free to charge their own tariffs. The British Rail brought in privatisation in the late 1980s. It had an elaborate scheme: dividing the railways into a number of corporations — some for maintaining fixed infrastructure, some for maintaining moving stock (locomotives, coaches and wagons), and some for operating trains.

Privatisation in the Indian Railways, whether gradual or quantum, is a welcome step and will add value to the system. It will open an opportunity for dedicated and efficient railwaymen because they will get rewarded for their efforts at the market rate.

Harsh Kumar, director of National Institute of Financial Management, Faridabad, was an executive director, finance (expenditure), Railway Board and financial adviser, Northern Railway

R.C. Acharya: Privatising not feasible sans subsidies

Profits of train operating companies in the UK are mainly made by a hidden subsidy of low-track access charges levied by Network Rail — a government entity which manages the infrastructure.

The operation was successful but the patient died” may well apply to the Indian Railways if and when railway minister Suresh Prabhu manages to implement the Bibek Debroy committee’s recommendations to usher in private sector participation in train operations. Modelled on the initiative of the British Rail, which has provided a windfall for rolling stock manufacturers in the US and Europe viz. Bombardier, Siemens, Alsthom. ABB etc. it would, undoubtedly, provide a quantum jump in sales now for their respective facilities based in Gujarat, Tamil Nadu and elsewhere in India.

Having gained a foothold by manufacturing hundreds of coaches for the Delhi Metro Rail Corporation over the last one decade or so, they are now eyeing the much bigger pie of main line coaches. Reportedly, the railway board has already invited expressions of intent for train sets, which is its unique selling proposition. It would also go a long way to promote Prime Minister Narendra Modi’s “Make in India” mission.

However, in order to facilitate entry of private sector players in the field of passenger and freight business, separation of infrastructure from operations is expected to provide the private sector a level-playing field, as had been done in the UK and some of the European Railways as per the EU directive 91/440/EEC.

Unfortunately, one of the models to be copied viz. the British Railways is nowhere in the same league as the Indian Railways, carrying 60 billion passenger kilometres as compared to the Indian Railways’ workload of over 1,100 billion passenger kms. Moreover, profits of train operating companies in the UK are mainly made by a hidden subsidy of low-track access charges levied by network rail — a government entity which manages the infrastructure.

These access charges have over the years been reduced and are now at a level of only $2.56 billion, half of what it was at the start of privatisation, thanks to the tariff regulator and independent entity which the Debroy committee has now proposed for the Indian scenario.
As a result, while the private sector which took over the train operations have made all the profit, the infrastructure entity once again owned by the government — as private sector had failed to maintain its safety standards — continues to be subisidised by the taxpayer, soaring to nearly four times the level since the privatisation began.

However, not all private operators have been successful in their initiative. Reportedly, the East Coast line ran into losses. As a result, the private party opted out and once again the government had to step in. It has been running it successfully ever since. The upshot of all this experiment in privatisation has resulted in the network rail being not only unable to recoup the real cost of operating and maintenance of the infrastructure but also spending an additional $8 billion a year on capital investment to improve the system financed by issuing public bonds.
Reportedly, while in 2003, network rail spent more than $2.4 billion on maintenance and about $400 million on debt interest, a decade later it ended up spending $1,500 million on maintenance and over $2.4 billion on debt interest charges.

A state of affairs which the Indian Railways may soon find itself in, if and when the proposed privatisation of train operation becomes a reality.

R.C. Acharya, former member, railway board

( Source : deccan chronicle )
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