Privatisation of Indian Railways – Part 3: Step by Step Privatisation of Indian Railways

Indian Railways plays a vital role in the country’s economy. Many generations of workers and their families have contributed to building it. This key institution is being systematically broken up and privatised stealthily part by part by the Government of India. During the last 25 years, every government, irrespective of the political party in power at the centre, has been carrying out the privatisation of Indian Railways in the name of “restructuring”, “rationalisation” and “modernisation”.

By now there is hardly any activity of Indian Railways, including transport of goods and passengers, which remains untouched by privatisation drive.

Today the privatisation of Indian Railways is being pursued on a number of fronts simultaneously.

Indian Railways is being systematically broken up into different corporations. Corporatisation means to convert some activity of Indian Railways into a business of a separate corporation, under government ownership to start with.  These separate companies can be sold to some private monopoly capitalist, either partly through sale of shares, or fully, as a strategic sale.  An important  aim of corporatisation is to weaken the unity of rail workers as they get divided into different companies.

By now, about two dozen corporations have been formed for activities that were previously run by Indian Railways. (See Box 1 for details)

Box 1: Corporatised Rail Activities

  1. Activities Separated from Indian Railways and Corporatised
  2. Indian Railway Catering and Tourism Corporation Ltd. (IRCTC) – Provides catering and on-line ticket reservation services. Also running private Tejas trains.
  3. IRCON International Ltd. – Provides consultancy services in India and other countries for new rail lines.
  4. Indian Railway Finance Corporation (IRFC) – Arranges capital from market to buy engines, wagons and coaches and lease them to Indian Railways.
  5. Container Corporation of India Ltd. – Runs container trains.
  6. Mumbai Railway Vikas Corporation (MRVCL) – Building new suburban rail lines in Mumbai Metropolitan Region and strengthening suburban railway infrastructure.
  7. Rail Vikas Nigam Ltd. (RVNL) – Building new rail infrastructure, including electrification of rail routes, all over the country.
  8. Dedicated Freight Corridor Corporation Ltd – Building new rail lines dedicated for running goods trains at high speed.
  9. High Speed Rail Corporation Ltd – Responsible for bullet train project between Mumbai and Ahmedabad.
  10. RAILTEL Corporation of India Ltd – Provides telecommunication services for use of railways, government and private sector.
  11. RITES Ltd. – Provides design services to Indian and other railways
  12. Rail Land Development Authority (RLDA) – responsible for commercially developing free land of railways through private developers
  13. Indian Railway Stations Development Corporation Ltd (IRSDCL) – Responsible for modernisation and commercial development of railways stations through private developers.
  14. Activities Started as Separate Rail Corporations

– Konkan Railway Corporation – Provides railways service to coastal districts of Maharashtra, Goa and Karnataka.

– Metro Rail Corporations – Delhi, Mumbai, Chennai, Kolkata, Bangalore, Kochi, Jaipur, Amravati (Andhra Pradesh), Maharashtra (Pune, Nagpur), Gujarat, Madhya Pradesh, Uttar Pradesh, etc. as joint venture with respective state governments for building and running metro train services.

In 2020, a major plan of corporatisation of seven production units of railways, which produce coaches and engines, was announced. Due to very strong opposition of workers, it has been deferred for the time being.

Corporatisation is the first step towards privatisation. Shares of six corporations have already been sold in the stock market.   (See Box 2)

Box 2: Partially Privatised Corporations through Sale of Shares

  1. Indian Rail Finance Corporation Ltd
  2. IRCTC Ltd
  3. IRCON Ltd
  4. Rail Vikas Nigam Ltd
  5. RailTel Corporation of India Ltd.
  6. RITES Ltd

The government is moving in the direction of breaking Indian Railways into a track-owning company and train operating companies. While the track-owning company will remain government owned, train operating companies can be government owned or privately owned. The track owning company will provide its infrastructure to both government and privately owned train companies at a fee. Capitalists will provide passenger and goods services only on profitable routes. Indian Railways will be left with loss-making, but socially necessary services.

The plan for private passenger and goods train services has already been launched. The introduction of private passenger trains began in 2019 with Tejas trains and is now being further pushed with the introduction of 151 privately run trains on 109 routes over the next few years. The routes selected for private trains are the busiest routes and the most profitable for Indian Railways.

The Union Budget of 2021 has announced the plan to introduce private goods trains on the Western and Eastern Dedicated Freight Corridors, when they are completed in 2022.

Another area of privatisation of railway stations has been opened up in the name of their modernisation for improving passenger amenities. A new organisation, the Indian Railway Stations Development Corporation has been formed for this purpose. The management of amenities like food stalls, retiring rooms, power, platform maintenance, parking at railway stations after their modernisation for the agreed period of lease, 8 to 30 years, will be in the hands of the private developer. Private developers are also being given freedom to develop the space on the stations and land around it commercially for shopping malls, hotels, and residential purpose. The lease on this land will be up to 60 years. Passengers will be required to pay ‘user fee’ at these privatised stations as a part of their ticket. This will also accrue to capitalists. Modernisation and privatisation of 110 stations has already begun.

To prepare for introduction of private passenger and goods trains, the government had approved the formation of the Rail Development Authority in 2018 which is an advisory/recommendatory body. The Authority will recommend about ‘Pricing of services commensurate with costs’ (which means removal of subsidies and concessions), ‘promotion of competition’ (which means privatisation of train operation), and creation of ‘positive environment for investment’ (which means providing attractive terms for private capital).

While the programme of privatising Indian Railways has been accelerated during the last six years by the BJP-led government, it was initiated by the Congress-led government headed by Narasimha Rao in 1994, as part of the overall program of liberalisation, privatisation and globalisation. 

Various committees were set up from time to time by both Congress and BJP led governments by saying that their purpose is to rationalize and restructure the Indian Railways to improve its efficiency. (See Box 3 for details)

Box 3: Committees Set Up to justify privatisation

1994: Three committees were set up to recommend reforms in Indian Railways – (1) Prakash Tandon Committee on Organizational Structure and Management Ethos; (2) Gupta-Narain Committee on Rationalization of Management Services and (3) Poulose Committee on Railways Capital Restructuring.

2001: The Expert Group on Indian Railways, headed by Dr Rakesh Mohan, Former Director General, National Council of Applied Chairman Economic Research, New Delhi, submitted a report titled “Policy Imperatives for Reinvention and Growth”. It proposed dividing railway activities into ‘core’ and ‘non-core’ and out-sourcing and corporatization of non-core activities.

2011: A committee under the chairmanship of Sam Pitroda on the “Modernisation of Indian Railways” gave a push to privatisation through Public-Private-Partnership form.

2014: Committee for Mobilization of Resources for Major Projects and Restructuring of Railway Ministry and Railway Board, was set up under the chairmanship of Bibek Debroy, Member Niti Ayog. It recommended introduction of private passenger and goods train in competition with Indian Railways.

Their real purpose has invariably been to open up new areas for capitalists to make private profit from activities that have traditionally been carried out by the Indian Railways and leave the non-profit generating ones to be run by the government with public money.

First it was suggested that Indian Railways should engage in only those activities that are directly related to its ‘core’ activity and that all ‘non-core’ activities can and must be outsourced or corporatised. “Core” activity was defined to be goods and pasenger transport.

Over the years a large number of activities such as cleaning of railway stations, washing of trains, food catering, loading/unloading of bed rolls, maintenance of air conditioning of A/C coaches, etc were outsourced. Important activities like production of locomotives, coaches and wagons, maintenance of telecommunication network and IT systems were also outsourced. The activities of running schools, colleges and hospitals for welfare of rail workers were outsourced as well. Outsourcing means to give out some particular activity, which has so far been carried out by the workers of Indian Railways, on contract to a private operator.

The first attempt to privatise goods transport was made in 2006 when the policy for running container trains by private operators was announced. Based on this policy 19 companies including the Container Corporation of India Ltd. (CONCOR) were licensed to run the container trains. These Container trains are run on demand of licensed private container train operators on payment of the haulage charge due.

Indian Railways also used the Public-Private-Partnership (PPP) model to push the privatisation program. While it is called a partnership, PPP is in reality an extremely unequal and lopsided arrangement, where the private company is assured of profits while the State, as representative of the people, bears all the risks. The State provides a guaranteed rate of return on the private capital invested. This way losses, if incurred, are passed on to people while profit goes into private pockets.

The PPP model has become the preferred method for capitalists to profit from various rail operations such as running railway stations, high-speed rail corridors, elevated rail corridors, freight terminals, leasing of wagons, loco and coach manufacturing, and captive power generation.

With the opening up of 17 key areas of railways for 100% foreign direct investment (FDI) in 2014, more avenues were created for private Indian and foreign capital. Two high value diesel and electric locomotive manufacturing plants with foreign capital from GE of USA and Alstom of France are already under operation at Madhepura and Marhora in Bihar and they have been assured long term business.

It is evident that the privatisation of Indian Railways has been going on stealthily step by step for more than two decades. It was carried out, to begin with, in the form of outsourcing and PPP. Now it is being carried out openly.

It is a program which will ultimately lead to the transfer of all profitable activities of the Indian Railways to capitalists. Only ownership of tracks, signalling system and related infrastructure will be left with government-owned Indian Railways, along with loss-making passenger and freight operations.

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