Why Indian Railways Failed To Attract Private Players To Run Trains

Context: The Indian Railways (IR) shall undergo fundamental structural reforms in order to take forward the policy of private-run trains.

A subdued response to the policy of private run trains: There were no bids for nine clusters and only two bids for three clusters. Even for these three clusters, the only serious bid was by Indian Railways’ (IR) own company IRCTC.

Reasons for the failure in attracting private parties to run trains

• Lack of alignment of interests of IR and the concessioners: IR wants the capital and technology without giving up control, while the concessioner wants a far more equal relationship to be moderated by a regulator.
• Policy gap: IR has imposed constraints that prevent efficient decisions and adopted an organisational design that does not take into account the characteristics and associated risks that will determine outcomes and investment decisions.
•  Biased risks and constraints: 
  • Demand uncertainties: Train sets have to be purchased without really knowing how much traffic the service will be able to attract in the face of rising competition from airlines.
  • No state guarantees: IR does not guarantee the investor that, in case the concession fails, it will acquire the train sets.
  • Absence of a regulator for resolving disputes: The proposed independent engineer is far from satisfactory.

Way forward

• Towards aligning interests of stakeholders: Establishing a company that leases rolling stock not only to concessioners but also to IR.
  • This will bring in competition by bridging technology gap, reducing lumpiness in investments and the concession period from 35 years to a more reasonable 10-15 years.
• Long term structural changes: An arrangement that gives access to IR’s rolling stock market is the only way to compel global players to share technology and form joint ventures with Indian companies.
• Developing the ecosystem: Investment of large sums of money and involvement of universities, research institutes and national laboratories is critical. 
• For example, for developing high-speed train technology, the Chinese involved 25 national first-class key universities, 11 first-class research institutes, and 51 national-level laboratories for research, development and production.