Railways sector in India

Indian railways started its 53km journey between Mumbai and Thane on April 16, 1853 and is today one of the largest railways in the world. Indian railway is spread over 109,221km covering 6906 stations. Operating three gauges, trains in India carry over 481 billion ton kilometers and 695 billion passenger kilometers of goods and traffic respectively. Indian railway carries 40% of freight traffic and 20% of the passenger traffic in country. IR is one of the premier infrastructural wings of the economy combining all major functions of a conventional Railway system. It builds and maintains infrastructure assets like Track, Electric traction, Signaling Systems, Telecom network, Stations / Terminals etc. Apart from operating goods and passenger trains, it operates suburban trains in various metros. It manufactures locomotives, coaching stock, wagon and components of rolling stock like Wheel & Axle. It runs workshops to maintain its rolling stock & is also involved in ancillary activities like catering, tourism etc. All the above activities are managed through a strong work force of 1.41 million.

Indian Railway’s operations are characterized by mixed traffic –both passenger and Freight trains share the same track and infrastructure. Passenger trains constitute nearly 70% of the trains run but contribute to less than 35% of the revenue earned, while freight trains constituting only 30% of the trains, make up 65% of the revenue. Like most of the other railways in the world, IR faced a very challenging environment towards the closing years of the 20th century characterized by severe competition from road in freight and airlines, luxury buses and personal vehicles in the passenger segments. Indian railway has been a success story; however, IR needs to be alive to the fact that its freight traffic stands on a narrow base of a few commodities. The traffic is also concentrated on certain high-density routes; in particular, the routes connecting the four metropolitan cities of the country which constitute 16% of the network but carry more than 50% of the traffic.

The current legal framework under the Railways Act 1989 allows private railway systems in all forms. However, the government policy enunciated under Industrial Policy
Resolution of 1991 as amended from time to time, reserves railway transportation for the public sector. It means that train operation can only be done by the public sector, while all other activities of design, construction, financing, and maintenance can be undertaken through private participation through award of concessions by Government of India. Presently, the Railways are managed through 17 Railway Administrations which are legal entities. In addition there are six port and other railways. The Railway Board was constituted under the Railway Board Act, 1905 and it is also a railway regulator, dealing with a large number of issues including tariff regulation. Railway Board and the Commissioner of Railway Safety, whose office is under administrative control of Ministry of Civil Aviation, jointly work as safety regulator.

There are only two kinds of rail systems that lie outside the integrated IR network. The first includes the close circuit systems that is, the Merry- Go-Round systems created and operated by the NTPC for super thermal power plants. The other kind includes standalone metro rail systems which are planned for and financed by the Ministry of Urban Development. The private sector has been largely associated in design, financing, construction, and maintenance of fixed infrastructure in railways. Construction activity in rail sector is normally undertaken by the private sector through contracts.

Unlike ports, highways & airports, where a regulator offers certain level of stable returns to private investors, railways by virtue of their monopolistic nature of operation, do not offer an alternative to customers among various Railways. The tariff policy is also fixed by the Government. There is thus a need for separate accounting for infrastructure and train operations for initiating any long term PPP regulatory framework.

As per the Economic Survey 0f 2008 – 2009, the plan outlay in FY08 on Railways was
Rs 29,983 cr while the budget estimate for FY -09 is placed at Rs. 36,726 cr

Alternative financing initiatives of Indian railways are as follows:

* CATERING AND TOURISM SERVICES * PROJECT COST SHARING WITH STATE GOVERNMENT * CONTAINER MARKETING & PRIVATISING PARCELS * OWN YOUR WAGON SCHEME * PORT LINKING PROJECTS and other efforts

Other efforts of Indian railways are introducing some tourist trains like Place on Wheels and another tourist train Deccan Odyssey is being run by Maharastra State Tourist Corporation. Privatization of some more tourist trains including the Kisan Tourist Train to cater to common people is on the anvil.

Regarding PPP in Indian railway several models of Private - Public Partnership are now being used in various infrastructure projects in the Transport Sector including Railways. The spectrum of projects varies from leasing out of Government owned facilities to BOO (Build, Own, Operate) and BOT (Build, Operate and Transfer). While it is possible for other infrastructure projects in ports, highways & airports to be an independent system which could be operated and maintained independently of the existing system, the same is not possible for Railways.

Some of the PPP project initiatives undertaken by Railways are follows:

CONTAINER CORPORATION OF INDIA LIMITED (CONCOR

INDIA RAILWAY CATERING & TOURISM CORPORATION LIMITED (IRCTC)

RAIL VIKAS NIGAM LIMITED (RVNL)

PIPAVAV RAILWAY CORPORATION LIMITED (PRCL)

Indian railways is promoting PPPs as well as playing the role of a regulator. Creating an enabling environment for PPPs is of paramount importance. Corporatization of IR is the best way to take the restructuring of the IR forward. The IR should also adopt Generally Accepted Accounting Principles (GAAP), the role of the IR Regulatory Authority should be strengthened and it should be allowed to decide the fares to be charged from the passengers with a provision for adequate compensation from the Union Budget for keeping fares cheaper to fulfill its objective of social welfare. Understandably, for the slow approach is the fear of emergence of private monopolies in the place of state monopoly in case right policies are not adopted. The characteristics of the railways are such that private monopolies will mushroom in place of state monopoly in case the right policy is not adopted. This again brings us to the need for an independent regulator on the lines of TRAI. The strategies implemented by the IR have really worked to its benefit and have allowed the railways to also be a profit making business keeping in mind the welfare of citizens.