Wednesday, January 12, 2011

Privatize the Railways

Today's story shows how the airlines sector is booming and how things have changed with privatization.
Indigo placed an order for 180 Airbus A320 for delivery from 2016 onwards. The order size is worth $16 billion. This follows an order of 100 A320s they placed some 5 years back....worth $6 billion, of which some 40 odd planes have already been delivered. At present there are some 400 aircrafts in India....this number will double in less than 5 years. Funding is not a problem apparently. They made a profit last year.....apparently, all airlines are now expected to make a profit this year after a bit of a rough ride in the last few years. Apparently, shares of EADS - the European company that makes Airbus planes went up because of our order. Wow! Apparently, there are much bigger orders waiting to be placed by the other airlines! Wow! I am sure VIP Frenchie Sarkozy will be back here pretty soon!

All of us know how private airlines have changed the very meaning of travel in this country. Today, we have a choice of airlines, departure times, on-line booking options, seat preferences....we even get rewarded with frequency flyer points!.....and just 10 years back, things were not this cool.

And yet the joy of easy and comfortable travel is unavailable to 95% of India's population who use the trains. Why cant they get what a few of us are getting?

The story of railways is exactly the same as that of any other governmental service. Its in line with what I have mentioned in earlier posts.....anything to do with the government has suffered in this country.....most things to do with the private sector have fared well.

So here's a thought. Why cant the government privatize the railways? What this means is that the government allow the private sector to run their own private trains. They could charge higher amounts and provide better services. They would still use the same tracks that the Indian Railways currently uses....but to use the tracks, they would have to pay a fee to the government (just like airlines pay for airports etc). They would be willing to pay the government because private trains would also charge higher amounts from their customers. A lot of people would pay higher charges because they are willing to pay for better services. The government could then use that money to improve the quality of tracks and safety conditions. Also, the government could use the money to increase the number of trains run by the Indian Railways.....just like Air India increased its flights.....and hence they could provide more and better trains to the poor. Basically, whatever happened in the airlines sector could be repeated in the trains sector.

Here's the economic logic for this. Basically, railways suffer from extreme incompetency and inefficiency. So their costs are horrendously high and their safety standards really low (exact opposite of what it should be!). Because of political reasons, they are unable to charge higher rates from passengers. Hence no re-investments and so on. Now, this does not mean that there is no opportunity to increase prices, improve efficiency and start making the investments. Its not a problem of the sector....its a problem of the operator.

So if the government really cares for the poor, it should privatize the railways. Today, they will shout this idea down saying that its anti-poor. The real truth is that they (the politicians) are anti-poor! The real truth is that the Railways is a huge money making opportunity for the politicians. The Railways ministry is one of the most sought after ministries....because it has a budget of some 65K crores per annum. Isnt it interesting how government departments are always measured in terms of the costs they incur....never in terms of the revenues or profits they make? This is understandable. Money is made on costs, not revenues! The real truth also is that the Railways has become an employment exchange.....there are 14 lac Railways employees! Amazing isnt it? Here's another startling shocker......while the railways has an operational spend of Rs 65K, they were able to spend only Rs 1K on investments (they call it "development" plans). Now you know why the max speed of Indian Railways is just about 130 kmph when the rest of the world is scaling 300 kmph. This also explains why only about 180 kms of new tracks are being laid every year.......Can you imagine any large private sector company with such stats?! And this at a time when it has a monopoly?

The aad aadmi is getting a raw deal. The aam aadmi must demand better Railways. We all deserve better trains. Train journeys are more fun that flights. You dont have to arrive 1 hour before at the airport, and then hover around in the sky for an hour before landing. You get to see the new people. I even love the chugging sound of the train! So many of my memories are tied in with trains. Besides, air travel is still way too expensive for most people.

So here's a thought before this year's railways budget is presented......let Mamta say that she wants to privatize the railways. Its not that difficult to imagine really......I think she can put an initial condition for this.....the headquarters must be in Kolkata!!


  1. Very good Prashant.. Especially last line of last para.. Headquarters must be in Kolkata!.. 14 Lakhs employees in Railways!!!.. only 65K Cr revenue (or expense!).. Per employee earning / expense is 4L only.. that means the IR is running for its employees only ( off-course for politicians!).. not for poor!!
    There are only two trains a week between Bangalore to Ahmedabad (point to point) but 3 trains everyday between Bangalore to Kolkata!!.. so they don’t follow the demand & supply policy also..

  2. Typo, penultimate para, first sentence.