NITI Aayog's PPP model of privatization may put Indian Railways in permanent deficit

If the proposed model is implemented is its present form, in a couple of years the government trains will become like government schools. The passengers having higher purchasing power will shift to private trains. There seems to be a need to put more thoughts as the policy will decide future of Indian railways for over three decades i.e. beyond 2050.

 

HIGHLIGHT

• Indian railways to pay private partners for non-performance but not its own passengers.
• Draft policy is silent on security expenditure which was contentious issue in Reliance operated Delhi Airport Metro Express Line.
• Private companies will have freedom to decide fair and types of coaches.
• Private companies will have rights for minimum 35 years.

 

The flagship privatization model of NITI Aayog designed to bail out Indian Railways from current financial crisis may put the public carrier in a permanent deficit for decades to come. There exists some provisions in the proposed public private partnership (PPP) model which besides benefitting private train operators would harm the interests of government trains.  

Provision of Penalty

In a first, the Indian railways has decided to pay for its non-performance but to private companies not the passengers. 

“Penalties will be pre-specified in the Concession Agreement for the failure on the part of the Railways,” said the proposed model put in public domain by the NITI Aayog for consultations to which comments could be submitted by January 17, 2020. “Pre-specified penalties shall be recovered from the Concessionaire for failure to meet the prescribed performance standards and outcomes,” it added. However, provision to impose penalty on private partners and contractors for non-performance is an old practice of the Indian Railways but making railways to pay penalty to private partners seems to be a new trend in the history of railways. Presently, the passengers of the private train ‘Tejas’ being operated between Lucknow and New Delhi are paid for delay by IRCTC. However, in the draft policy document the railway has been made liable to pay to the private companies for delays caused by its non-performance. This money seems to be expended in paying penalty to private train passengers for delays, in future. 

Indian railways has always argued that it was not liable to pay compensation or fine for delays. Furthermore, the rules were made tough to avoid paying compensation to the kin of passengers who lost their lives in accidents.

 If the policy is implemented in the present form, the passengers travelling in private trains will be paid for delays but not the passengers of government trains. This rule will provide an edge to the private companies.

Freedom to Decide Fare

Besides, the private train operators will have the freedom to decide the passenger tariff. Presently, the high paying passengers get better facilities a graded manner in sleeper and various categories of air conditioned (AC) coaches. In the present system, the only similarity between a rich and poor passenger is – all reach their destinations at the same time. 

The freedom of deciding fare along with the provision of penalty for delay means the high paying passengers would reach their destinations on time. Besides, the higher fare will come with better facilities such introduction of next generation technology, provision of higher service quality, improved coach technology and reduced journey time. These facilities and services will finally become arguments for hike in fares.  The provision is enough to shift richer passengers from government trains to private trains. 

Privatization will increase further

The present proposal is only for the first phase of 156 trains on 100 routes. However, the draft policy categorically mentions further privatization.

“With likely commissioning of Dedicated Freight Corridors in 2021 and other infrastructural works, it is likely that there would be availability of additional paths for operation of additional passenger services uncertain routes,” said the draft policy. Thus the government will introduce more train on these routes and also on new train routes. Presently an ‘indicative list’ of 100 origin destination pairs for introduction of train services by the private entities have been divided into 12 clusters such that each cluster would require operation of a minimum of 12 (twelve) rakes. The trains routes covered in the first phase are Mumbai Central to New Delhi, Allahabad to Ahmedabad, Kanpur to Bandra, Anand Vihar to Katra, Lucknow to Jammu-Tawi, Kanpur to New Delhi, New Delhi to Gorakhpur, New Delhi to Chandigarh etc.

As private partners are driven by profit, they will always pick up profitable routes for their business. The non-profitable routes will come in the share of government trains. This will further hamper the revenue of government operated trains.

No words on security expenses

According to the proposed policy, the concessionaire would be responsible for providing Crew and Guard. However, it would have the option to take Crew and Guard from IR on secondment. “Private Entity shall be free to procure trains and locomotives from a source of its choice, provided such trains and locomotives are compatible with specifications and standards specified in the Concession Agreement. The trains could be either loco hauled or distributed power,” said the draft.   

The policy document is silent on security expenditure which was one of the main reasons for the collapse of the Reliance operated Delhi Airport Metro Express. In Delhi Airport Metro Express, the expenditure of security was to be borne by the private partner. Reliance which had agreed to this condition on paper finally expressed its inability to pay expenditure for the CISF personnel posted for security. This led to the collapse of the project and finally the government had to take over airport metro line in Delhi. 

Here either the government had owned up the burden or leaving a loophole which may benefit the private companies in case of any legal dispute in future. 

Sustainable Solution lies in fair competition

In her budget speech 2019-20, the Finance Minister Nirmala Sitharaman had estimated an investment of Rs 50 trillion in railway infrastructure between 2018-2030. She has also proposed public private partnership to fast track reforms in the railways.

Though the vision of private investment in railways is a welcome step, it's the responsibility of the policy makers to draft such a robust policy. The public private partnership should be based on the principle of equality not extra facility for private partners.  It should also envision a healthy competition between public and private partners. Paying to passengers for delays is a welcome step but it should be implemented without any discrimination.

If the proposed model is implemented is its present form, in a couple of years the government trains will become like government schools. The passengers having higher purchasing power will shift to private trains. There seems to be a need to put more thoughts as the policy will decide future of Indian railways for over three decades i.e. beyond 2050. 

(Disclaimer: The opinions expressed are the personal views of the author. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)