Privatization of Indian Railways: How it is good or bad? — Strickendots

We have seen much news stating that the Government decided for the privatization of the Indian Railways. So before going to state the pros and cons of privatization of Indian Railways first understand what privatization really means.

Privatization, in its purest form, could be said as the de-nationalization of enterprises. That means the transfer of ownership of a government-owned enterprise to the private sector. Let’s say the government is the owner of a company and when it decides to sell it in the market to private players then a company which was prior to a national enterprise i.e to say public property becomes privatized or de-nationalized. Countries like the USA and UK were among the first player to play the cards of privatization. The government of the UK transferred 100% ownership to private players which were later criticized all over the nation. Learning lessons from the mistakes committed by other nations in past a more responsible and reliable form of privatization was invented that is disinvestment.

Disinvestment is what it sounds like, something opposite of investment. This process includes selling shares of the state-owned enterprise to the private sector. Disinvestment is the de-nationalization of less than 100% ownership transfer from the state to the private sector.

Privatization in India; A Tool for Economic reform

Indian masses got familiar with the term privatization after 23rd July 1991. When existing P. V. Narasimha Rao Government took a bold and controversial step in form of economic reform. At that time when India was stuck in high foreign debt and BOP (Balance of Payment) crises. India went for LPG reforms which were prescribed and dictated by IMF ( International monetary fund) in exchange for external currency support to suspend our BOP crises. LPG stands for Liberalization, Privatization, and Globalization. Liberalization shows the direction of reforms, privatization shows the path of reforms and globalization shows the ultimate goal of the reforms. Privatization shows the path to reform, it means it includes the promotion of the market and indicates a declining rate for the state and expanding role for the private sector in an economy.

Privatization of Indian Railways

Recently the Government of India has decided to sell 5% shares of Indian Railway to private players. Now as I have mentioned above this privatization is a form of disinvestment made by the government.

Why disinvestment?

Disinvestment i.e selling out of existing assets by an individual or an organization generally occurs in two cases. First, the owner ran out of money in his pocket, and second, the owner is no more interested in making any further investment in an existing enterprise. The first reason seems to adequately fit in the case of the privatization of the Indian Railways. Every year railway bears the loss of crores of rupees. It witnesses fiscal deficit which means the expenditure made by the government in the maintenance of trains, tracks, railway station, and in paying salaries and pensions to its employees is much higher than the revenue (income) it derives from ticketing, fees, cost of transporting bulky material in fridge trains. For example, in April- November 2019 it earned 1,14,197 crore against a target of 1,36,026.22 crore, and also other expenditures by railway increased up to 4,400 crore.

Imagine a situation where you don’t have a single penny in your pocket and you have to make arrangements for your dinner. Additionally, the place where you work already demands money from you, as prior you have taken from it. Obviously you will be left with the option of beg, borrow or steal. Similarly, when a government needs money for expenditure it begs that is to ask for a tax to citizens, borrow from other countries and international organization like WB( world bank), IMF(international monetary fund) and as the government can’t steal, it sells out its assets which is called disinvestment.

There are various types of disinvestment but what the Indian government did is token disinvestment ( minority stake scale). This includes the policy to sell the shares of PSU’s maximum of up to 49%. But in practice, shares are sold to the tune of 5–10 % so that ownership of the enterprise remains in the hands of the government.

Pros and Cons of Privatization of Indian Railways

Pros:-

1.Uplift profit-making

It is believed that due to corruption, negligence and lack of discipline by passengers in railways are witnessing huge losses. Hence the arrival of private players would avoid such things resulting in upliftment in the profit margin of Indian railways.

2.Advancement of Railways

It is expected by the government and many scholars also, that privatization of Indian Railways would bring many private players for investment which will lead to a strong competition among them. They will try their best to provide better facilities, tastier and healthier food, cleaner toilets, etc. at affordable prices. Also, it will bring modern technology into the system of operation and administration of the railway. Hence railways will witness the fastest advancement ever under the privatization of Indian Railways.

3.Make In India

It is expected that the privatization of Indian Railways will lead to higher prosperity of projects like Make In India. Indian manufacturers of coaches and locomotives will witness development not only in their business but also in the evolution of better and cheaper products and advancement in the field of research and development. Vande-Bharat Express, an indigenously developed semi-high speed intensity train is a perfect example of it.

4.Better Tracks

Maintenance costs will get lowered once private players will start dictating them, such type of statement is given by government officials.

Prior weekly maintenance was done at every 4000km but it is expected to fall up to dictation of 40,000 km long track once a month, which will enable trains to move fastly leading to reduced travel time.

Additionally many official claims that lack of maintenance is one of the major cause of accidents. As privatization of Indian Railways will introduce more discipline in administration very little chance will be left to meet accidents.

5.Higher Employment

Merger of 150 more trains in existing numbers will no doubt need additional staff. And presently it is clear that the train may run by private parties the majority of their staff will comprise employees of Indian Railway which would ultimately lead to higher employment.

Every coin has 2 sides head and tail, so every topic does have. After talking about the pros. Now let’s move towards the cons or disadvantages of privatization of Indian Railway.

Cons:-

1.Promoting Inequality

In order to get better facilities, eatable food, world-class experience with less traveling time passengers will have to pay higher fares to privatized trains. In that case, millions of people can’t travel on these trains as they can’t afford it. There are high chances that railway run trains will become trains for poor and private ones will run only for the rich. It will be like the difference between government hospitals and a private one. The government-run trains will become “ Greeb ki rail”. This will promote inequality in society as our nation in the case of private hospitals, private schools, private banks, etc.

2.Bring Informalization

As it is still unclear the employment criteria of privatization of Indian Railways, employability, and job opportunity of millions of unemployed. Indians are uncertain. There are high chances that like private banks, schools, and hospitals, private railway too will look for casual and temporary workers.

And as it is clear from our earlier article on Informalization that higher the people in the informal sector higher there is uncertainty in the economic life of individuals. Hence as private railway will bring Informalization affecting the career and future of people. The issue of this privatization of Indian Railways needs to be widely and publicly discussed.

3.Limited Connectivity

It is oblivious, that in order to maximize its profits which is the prior goal of every private enterprise, there is a possibility that private trains will never look for the routes which attract fewer passengers in far-flung and backward areas. There are millions of stories in India in which education, skill development, and job continue because of affordable and fair means of transportation like railways. It actually acts as a milestone in the development of many backward areas and the private player will limit this connectivity.

4.Issue of Corruption

It looks like a complete fragile ambition that the privatization of Indian Railways will lead to the suspension of corruption from the system of administration. At a bottom level it may manage to do so but who takes guarantee of officers of high cadre?

As we have seen in the case of ICICI Bank, PNB scam. Additionally, allegation like corruption is causing a loss in railway, and leading to leakage of tax paid by citizens also sounds unreal to us.

If the railway gets a budgetary allocation of 70,000 cr, to keep the engine running 50,000 cr get utilized in paying pension and salaries and remaining 2000 cr for station cleaning. How it will manage to look for coaches, tracks, services, and witness profit? Hence it would be irrelevant to claim the only issue of corruption for losses as the main problem lies somewhere else.

5.The question over safety

About half of the network of 68,000 km carries 96% of traffic freight plus passenger trains. Hence the railway left with no time for maintaining tracks. So they have stopped trains for maintenance leading to delay in deliveries. No doubt as private trains will also use the infrastructure developed by public money. And as fast delivery is one of their foremost promises by private trains it may raise the question of the safety of passengers.

6.Incautious Decision

Many railway officials believe the government, in its eagerness to push reforms, has ended up putting more pressure on railway finance.

Example Railway Minister Piyush Goyal on 27 Jan 2020 announced that the entire network will be electricity oriented by 2024 leading to less demand for a diesel locomotive.

During the Indian-Brazil Business forum, he declared that it will be the first railway in the world of this size and scale to be entirely run on electricity. Not mentioning about how we will deal with 1000 diesel locomotive already prepared in Bihar by Us giant locomotive company. Along with almost a win-win situation for an electric locomotive factory, in Madhapur 2 companies in Bihar worth 3,347 cr. got their first FDI in 2015, have still not managed to put up even prototypes for approval. Hence it looks like the government is somewhere taking the incautious decision of privatization of Indian Railways.

India Railways: Transportation Cum Emotion

India has the world’s largest rail network with over 12000 passenger trains operating daily. It is also the biggest government sector employer in the country with over 13 lakh employees. Not just that it is among the world’s busiest railway routes and highest density passenger trains. It connects for flung backward areas like Jaisalmer to smart cities like Jaipur without any interruption of routes, they use. Along with it, there are many examples where railway coaches are responsible for the availability of safe drinking water in backward areas.

If you have seen Akshay Kumar starer film Toilet: Ek Prem Katha which is based on real-life incident railway toilet serve as washrooms to lead actresses. I am not saying that is happening everywhere in the country neither I am appreciating this act. But the fact is that even today in many backward and far-flung areas the railway is giving services more than just a mode of transportation. The railway is acting as a mode of transportation cum emotion.

Way Forward

As the railway is more than just a mode of transportation to millions of people. It acts as a lifeline to many lives, hence any decision regarding such giant player which affects crores of people in one form or another, needs to be widely discussed. In absence of strong opposition in front of the existing government, it is the need of time to experience wide broad and inclusive public consultation regarding important decisions like privatization of Indian Railways.

Better option to introduce private players in railways would have been to corporatize the entire production unite and assemblage as the first step. There are no hurdles in the form of sharing infrastructure and inadequate accounting reforms, also it will enhance the potential of kick-starting PPP (private, public, partnership) to introduce better technology in the manufacturing of coaches and locomotives, No doubt, the Indian railway need reforms, but any change for the sake of change can’t be justified.

Originally published at https://strickendots.com on July 24, 2020.