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Should Indian Railways be privatised to prevent it from going the Air India way?

The Narendra Modi government’s audacious move to merge the eight railway services into the Indian Railways Management Service has invited criticism from many in the sector.

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The Narendra Modi government’s audacious move to merge the eight railway services into the Indian Railways Management Service has invited criticism from many in the sector. The government is also planning to “rationalise” passenger and freight charges. This comes on the back of a revenue loss of more than Rs 4,000 crore in the second quarter of FY20 compared to the first quarter.

ThePrint asks: Should Indian Railways be privatised to prevent it from going the Air India way?

Rather than privatisation, what is needed is wholesale reform of Indian Railways

Mihir Sharma
Economist & Senior Fellow, Observer Research Foundation

Unlike the airlines, the Railways is what in economics is known as a natural monopoly. The initial infrastructure costs are so high in the railways, as compared to the cost of operation, that the incumbents in the market are very strongly advantaged and proper market competition is impossible.

It is not easy, therefore, to envisage a well-functioning, profitable, and also competitive and welfare-enhancing private railway system. Certainly, some railway functions and even some trains and stations could conceivably be privatised. But the results of such actions elsewhere in the world do not inspire confidence. In the UK, private train companies run rolling stock on public infrastructure. This has led to concerns of systemic under-investment in the network, which has reduced the quality of service starkly.

Re-nationalising the entire network is very popular. In Germany, meanwhile, Deutsche Bank is a strange hybrid — a private company wholly owned by the government.

Privatisation or even partial privatisation is, thus, not the best idea from an economic point of view. What is needed is wholesale reform of how the Indian Railways is run and structured, and with professional managers replacing the privileged engineering cadres. Abolish the railways ministry, and create a holding company for the Railways.

Mergers different from privatisation

Anand Mathur
 Director general Retd. (Personnel), Railway Board

Privatisation is a totally different issue. The government approving the merger of railway services is just an instance of reorganisation of the Indian Railways. These mergers have nothing to do with privatisation.

I am sure the government’s decision to reorganise the Railways has been finalised only after much deliberation.

Moreover, it is important to understand that Railways is a very complex structure. Currently, officers of the Indian Railways belong to eight different services and their career progressions are mostly limited to posts in their respective departments. As a result, there is a tendency for each department to further its own sphere of activity. This may be in conflict with other departments or even with the organisational goals of the Indian Railways as a whole. With the government’s decision to merge all the railway services, all the officers will now belong to one common service, and inter-services disparities will be consequently eliminated.

This would help in the smoother functioning of the Railways and ensure better quality of services for the public. Moreover, it will equip the Railways to face challenges and become the prime mover of development in India.

Entry of private players will encourage greater competition, lower costs and improve service delivery

Radhika Pandey
Fellow, National Institute of Public Finance and Policy

There are strong arguments in favour of privatisation of the Indian Railways. While the Railways deserves credit for serving the largest democracy, it has transformed into an inefficient and bureaucratic monolith over the years. Overstaffing, low quality of services, lack of punctuality, low profitability, and cross-subsidisation are some of the pain points that need urgent attention. A number of sanctioned railway projects suffer from implementation delays leading to cost escalation.

There seems to be a consensus on allowing private participation at various levels in the Railways. A report by a committee set up by the Railway Board has recommended decentralisation of the Indian Railways to improve its service delivery. The 2019-20 Union Budget also proposed a number of public-private partnership initiatives in various areas.
Entry of private players will encourage greater competition and help lower costs.

Government finances are strained and it is not possible to allocate huge sums of money each year to overcome losses. It is time the government prepared a blueprint for privatisation of the Indian Railways to save it from going the Air India way.

The hurdles in greater private sector participation need to be addressed. At present, the central government (Ministry of Railways) is the regulator, operator and provider of services. These roles must be separated. The government has emphasised on improving India’s ease of doing business ranking. Improvements in the Railways’ infrastructure will go a long way in making India a preferred place to do business.

Views are personal

Only because of private players in the UK that Indian Railways came into existence

Vivek Khare
Railway expert 

As far as calls for privatising the Indian Railways are concerned, we will have to go back in history and recall how this sector came into being in the first place. Back in the 1840s, when the British decided to lay the foundations of the railway network in India, no one was ready to invest in the infrastructure.

There were two opposing views on the same. After many deliberations for six years in the UK Parliament, the British government decided to offer a guarantee. But if the project failed, then it would offer a counter-guarantee, which would be a return on investment for the private sector assured by 5 per cent interest per annum.

This is how private players from the UK established the railway network in India. Gradually, a few other players from Bombay (now Mumbai) and Baroda also joined. The Maharaja of Gwalior also saw business potential. Owing to administrative changes in the 1910s, the Indian railways was eventually nationalised, and the common rail budget system came into existence way back in 1925. It is only because of private players that Indian railways came into existence.

Looking at it from the profitability point of view wouldn’t be fair on my part. We have to take a more holistic view on why the Indian Railways has not been performing well over the decades.

Also read: Piyush Goyal, Railway Board to go all out to convince angry officers about service merger

By Kairvy Grewal, journalist at ThePrint 

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  1. Corrupt ghushkhor lazy kamchor Rail officers will be terminated if Privatization of Rail done. Very good step by Modi Government. Rail is failed department for corruption

  2. Indian Railways is unifying all the states as one bharat. This is required for common people to travel from one state to another for employment in unorganized sectors.the main concern is wages ,pensions ,privileges to its employees. Allowing extra allowances such as running allowance, mileage to locopilots, guards are to be removed immediately in next notifications, allowing pensions widowed daughters irrespective of having their age and having ennumbrt employed children, allowing additional 55%pension to locopilots and guards, introducing short service to locopilots and guard s, and terminating medically decatogrised staff, closing of all rly hospitals ,down sizing of ministerial categories
    Such as accounts department etc, treating all rly employees on par with passengers for travelling on trains, reducing officers strength, are to be taken up immediately, by fly administration. A suitable law is to be brought for arranging fast track courts for stringent punishment for destroying national property for using for hartal and agitation.(instant justice).collecting concessional fares from respective departments freedom fighters,for MPs, mlas, even from rly, for extentending facilities to its employees. Thinking privatising is stupidity. To attend for food supply for its 130 crore people this is, coal ,minerals this is the only way for govt. What are the other functions the govt,has?.it is shame on part of govt.for privatising the organisation.

  3. This is very good initiative to upgrade the Railway and only option. Infrastructure to be maintained by government and rest all should be by private companies. It is already exist in our country, in airlines and Jharkhand road transport. This will bring competition, lead to lower cost and better services. It is already late.

  4. This whole process sounds more like knee jerk reaction to merge all railway Cadres as one, than well thought and planned decision. Majority of the activity of Railway is technical in nature, be it manufacturing of engines/coaches, design and development of new rail technologies, be it maintenence or traffic and signalling…these activities can not be supervised by officials of commercial and accounts cadres. Railway is bound to make quasi departmentalisation even if different Cadres are merged otherwise only confusion and job misfit will prevail…

  5. One would agree with Columnist Mihir Sharma. The nature of IR makes it almost impossible to privatise. Subsidiary services can and should be. 2. Two successive chartered accountants heading the ministry have been unable to get a grip on finances. Personnel costs are too high. Freight has subsided passengers, rendering itself uncompetitive with road transport. 3. Merging eight services looks problematic, especially if, like many other bold moves, it has been insufficiently thought through. 4. The slowdown in the economy is hurting IR as well. Freight earnings on bulk commodities like coal are down. Debt servicing will be a challenge.

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