🚂 Can Going Private Help Indian Railways?
Indian Railways is not going private but isn't shying away from private investment either.
Privatisation.
This word has caused much debate in recent times.
Air India is one of the major PSUs to be privatised in recent times by the government, and many more are in the pipeline.
However, they recently announced that one PSU they won’t be privatising is the Indian Railways.
Nonetheless, it is one sector that could benefit immensely from and frankly needs private investment. Wondering why?
💰 The Need For Private Investment in Railways
The Indian Railways has been in trouble financially for some time now due to the massive amounts of money it loses every year because of concessions given to passengers.
These concessions are meant to make railways more affordable for passengers but end up costing the PSU crores and crores.
In 2019-20, Indian Railways suffered a loss of Rs. 2,059 crores due to these concessions. This loss narrowed down to Rs. 38 crores the next year but only because concessions were temporarily stopped.
Because of these losses, modernisation, manufacturing of new train units and infrastructure investments has become impossible.
Now, the government obviously spends on behalf of the Indian Railways.
In fact, this year’s Indian Railways’ capital expenditure (amount it can spend on assets, maintenance and more) has been set at Rs. 2.45 lakh crores.
However, Indian Railways needs a revenue of Rs. 3.5 lakh crores and an investment of Rs. 3 lakh crores every year to meet its targets: transporting 1,000 crore passengers (800 crores right now) and 300 crore tonnes of cargo (140 crore tonne right now).
So, even though the government may not want to privatise Indian Railways, it needs private investment.
This is why it is planning on launching Railway InvITs to fund operational assets.
🤓 What Are InvITs?
InvITs are Infrastructure Investment Trusts.
These trusts work like mutual fund houses that collect money from a lot of investors.
They then invest this money in existing infrastructure projects like roads, railways, and power grids.
And investors get a cut of the revenue that these assets generate (You can read more about REITs and InvITs here).
The government has already successfully used InvITs to monetise several toll-generating highways.
And now it is reportedly planning on launching Railway InvIT which will monetise some railway tracks, freight corridors, stations and other assets.
This would bring in some much needed cash and help railways recover the costs of the construction of these projects faster.
But this is not the only space where railways are seeking private involvement.
It has recently allowed a private operator, South Star Rail, to run a train from Coimbatore to Shirdi under the Bharat Gaurav scheme.
The scheme allows private businesses, especially those operating in the tourism sector, to lease and run theme-based trains connecting stations of significance, like pilgrimage sites.
This will help boost tourism and provide an extra revenue stream to railways.
For instance, Indian Railways is set to get an annual revenue of Rs. 3.3 crores from South Star Rail.
It had also planned to allow private players to bid for rights to around 109 railway routes. But the plan was scrapped as not many players were interested. They wanted more options and more control over the routes.
If Indian Railways could offer this to private companies in the future, it would not only increase its revenue but could also help modernise railway infrastructure and services as private players would leverage tech to offer the best possible service to customers.
However, it has not given up its quest to invite private players to solve Indian Railways’ problems.
It has launched a new policy called “StartUps for Railways” in which startups have been encouraged to come up with innovative solutions for 11 problems like rail fracture that the Indian Railways has outlined.
Indian Railways has promised seed money of up to Rs. 1.5 crores to companies whose solutions it likes.
More such policies and collaborations with the private sector could help Indian Railways become more efficient and boost its revenue.
However, only time will tell if the PSU is able to convince private players for collaborations.
⚡ In a line: The government has decided not to privatise Indian Railways but the PSU still needs private investment, so it is launching InvITs and partnering with startups.
💡Quick question: Do you think Indian Railways will ever be able to pull in major private companies like Reliance?
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