The Case for Privatization of Indian Railways

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Privatization
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With the introduction of home-built, semi-high-speed trains, and the upcoming Japanese bullet train and Hyperloop train projects, Indian consumers have a lot to look forward to. But what about the hundreds of other trains that rarely arrive on time (the average delay being 53 minutes in 2017) with coaches that are overcrowded with filthy seats and even filthier platforms?

The reason for the abysmal performance of Indian railways, owned fully by the Indian government, is gross mismanagement of resources (the working expenses and operating ratio of Indian railways shown in Table 1).

Table 1: Performance of Indian Railways for 2015-16 and 2016-17

It can be seen from the table that the operating ratio for 2016-17 is 96.5, which means that Indian railways earn just about enough to cover their operating expenses. Naturally, the organization does not have enough money to undertake projects to build new infrastructure, such as laying more railway tracks, adding new coaches and wagons, or even improving existing ones. An operating ratio close to one suggests complete negligence and a marked disregard for profit maximization. But that is all right since the Indian taxpayer will always be around to foot the bill. Clearly, there is no incentive to turn the railways into a profitable business, which would not be the case if the Indian railways were privatized.

But the biggest benefit of privatization would be the improvement in passenger safety. According to Indian railway’s Annual Report & Accounts for 2016-2017, the number of accidents has decreased from 106 to 103 (from ’15-’16 to ’16-’17). This seems like an improvement until you take a closer look at the detailed table provided in the report. The table says that from ’15-’16 to ’16-’17, the number of passengers killed increased from 40 to 195, which is nearly a four-fold increase in just one year. So, although the number of accidents may have decreased, the severity of the accidents has increased. If the severity is calculated by the number of passengers killed and injured divided by the total number of accidents, then the score has gone up from 1.56 to 5.25.

Clearly, the number of train accidents is not a good metric to assess the performance of Indian railways. Compare this to accidents in the aviation industry, where the last major plane accident occurred in 2010 when an Air India plane went down at Mangalore, killing 158 passengers. So, hypothetically, if an airline crashes 3.4 planes per year, only then would the number of passengers killed or injured would be equal to the number of passengers killed or injured in train accidents in 2016-2017. And, if an airline had three or four plane crashes per year, would it be able to stay afloat in the brutally competitive Indian aviation industry? The short answer is no, because if the firm does not go bankrupt first after paying compensation to the victims’ family, it would suffer an irreparable loss to its brand image.

The idea of the trains being owned by private companies is neither new nor preposterous. Canadian National Railways, privatized in 1995, has an operating ratio of 0.582. There are several private railway companies operating in the UK and only 4.4% of those trains were significantly late or were canceled in the first quarter of 2018. Unsurprisingly, their performance is far superior to the performance of state-owned Indian railways.

Considering the terrible track record of Indian railways in passenger safety, with long delays and dirty coaches and platforms, those who oppose the privatization of Indian railways must ask themselves: is it enough to simply provide railway service, even though the quality of the service is consistently sub-par?

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