Privatisation of Indian Railways

By BYJU'S Exam Prep

Updated on: September 13th, 2023


  • The Indian Railways is planning to develop 50 railway stations and operating over 150 trains with the help of Private players on the model of Public-Private Partnership (PPP) drawing an example from the privatisation of the six airports in the country.
  • The Ministry of Railways is planning to invite private players through its ticketing arm Indian Railways Catering and Tourism Cooperation (IRCTC), to run the trains. I 
  • The Indian government policy think-tank, Niti Aayog is pushing for an extensive plan for a holistic development around railway stations that will attract private players.
  • The Indian Railways is also planning to procure coaches, train sets, Electric Multiple Units and readymade trains from the private producers.
  • Recently, India’ First private train Tejas Express on the Delhi-Lucknow route inducted which is operated by the IRCTC.


  • The Indian Railways is the Fourth largest Rail network in the world in terms of route km (67,368km up to Financial Year 2017).
  • In FY 2017, almost 13,329 passenger trains carried over 22.14 million passengers daily, i.e., almost equivalent to Australia’s population while the Freight transported was 1.1 billion tones. 
  • The Indian government has allowed 100% Foreign Direct Investment (FDI) in the year 2014 to improve infrastructure for freight corridors and high-speed trains.
  • Till now private participation in railways has been very low as compared to other sectors like airports, ports, telecom and roads
  • Ministry of Railways attempted several initiatives in the past to involve private entities like leasing and wagon procurement, container operations, freight trains, warehousing facilities, catering services and various infrastructure rail projects.
  • But the major constraints of these initiatives are policy uncertainty, lack of incentive for investors, procedural or operational issues, absence of regulator to create the level playing field.
  • Currently, there are several coaches and engine factory functioning which are owned by the government like Rail Wheel Factory (Bangalore), Rail Coach Factory (Kapurthala), Integral Coach Factory (ICF) based in Chennai.

Objectives of Indian Railways:

 Niti Aayog report ‘Strategy for New India @ 75’ mentioned several objectives which are to be achieved by the year 2022-23 :

  • Increase in the capacity of existing rail infrastructure.
  • Increase the speed of infrastructure creation from 7km/day to 19km/day by 2022-23.
  • The target of 100 per cent electrification of broad gauge track is to be achieved by 2022-23 from the 40 per cent level in 2016-17.
  • Augment the average speed of freight to 50 km/hr (from about 24 km/hr in 2016-17) and also mail and express trains to 80 km/hr (from about 60 km/hr).
  • Improve the safety of the railways by achieving zero fatalities from 238 fatalities in the year 2016-17 and reduce the number of accidents from the 73 recorded in 2017-18.
  • Improving service delivery by achieving 95 per cent time arrivals by 2022-23.
  • Increase the share of non-fare revenues in total revenue to 20 per cent.
  • Increase in the capacity of freight load up to 1.9 billion by 2022-23 and an improved model share of 40 per cent of freight movement from the current level of 33 per cent.

Need for the Privatization of Railways:

  • The Indian Railways is still dependent on the gross budgetary support from the government. As Indian Railways incurring losses year-after-year.
  • Indian Railways always face criticism from the common people due to its punctuality. It has not been able to keep pace with modernisation of the infrastructure and not able to meet the increasing demands of the growing population.
  • Poor quality service delivery and catering are never up to a certain standard.
  • Almost every area of Indian Railways require modernisation of equipment, processes and training as all of them are running over decades and this is the actual reason for poor service delivery and inefficient functioning. 
  • Poor decision making, inadequate market orientation and long project approval durations lead to slow turnover times and delays in the implementation of the project.
  • Specialisation in the technical arena like track laying and maintenance, signal and transmission, coach design and manufacture, engine manufacture and maintenance are to be provided by private entities efficiently.
  • Cross subsidisation is done to manage the imbalances as freight fares are kept high to manage the passenger segment. 
  • Indian Railways acquire large tracts of land along its tracks which can be optimally monetised by inviting private players to invest and build properties over there.
  • The Bibek Debroy committee recommended liberalisation of the rail industry and allowing the private sector to provide services.
  • In 2018, Niti Aayog proposed privatisation of Indian railways via a report titled ‘New India’.

Advantages of Privatization:

  • Improved Infrastructure– Private sectors believe in customer satisfaction. In order to do so, privatisation will lead to better infrastructure and better amenities for travellers.
  • Currently, mismanagement in Indian Railways led to lack of water supply, dirty platforms, poor cleanliness of train, poor quality of food and stinking washroom.
  • Thus Indian Railways will provide the right global technology available.
  • Improved Safety– Recent rise in the number of accidents raises a major question on the safety of the Indian Railways. Any train-related mishap comes as a nightmare to travellers and authorities.
  • Private participation can lead to better monitoring and accountability, resulting in lesser accidents and higher monetary saving in the long run.
  • Improved efficiency– Any private company always have a profit incentive and interested in profit-making and government-run industry, managers do not usually share in any profits, so it is more likely to cut cost and be more efficient.
  • Balancing quality of services with high fares- Improvement in quality of services and normalisation of prices has to be matched. Inviting private players to foster competition and lead to overall betterment in the quality of services.
  • Privatisation can lead to an infusion of new technological innovation, capacity building and research and development could take place.
  • Railway services will attract foreign capital, creation of level playing field between domestic and foreign players, ultimately lead to customer satisfaction.
  • Competition between private players increased connectivity to new areas and help in linking new areas to railway connectivity map.
  • Private ownership, competition, shareholding leads to improvement in service delivery, cut costs while creating new employment opportunities.

Disadvantages of Privatization:

  • Coverage limitation– Indian Railways being government-owned provides nationwide connectivity irrespective of profits. Private operators in the way of profit-making can eliminate less popular route and thus major impact on the connectivity.
  • Autonomy on the fare-Railways is still considered as an affordable and easy means of locomotion. In order to make a profit in Indian Railways, the easiest way is to increase the fare which will make lower income group out of reach.
  •  Accountability– Private entities are unpredictable in their dealings and do not often share their governance secrets.
  • reliant on one entity would be a problem in the long run.
  • Monopoly of private entities- Problem of regulating private monopolies and needs proper rules and regulations.
  • Indian Railways are integrated vertical organisation, and it will be difficult to privatise some portion, and thus coordination would be difficult between state and private operators.
  • Unemployment- Problem of unemployment will occur as many employees may lose their jobs due to modernisation and especially in the production and ancillary units.
  • Private entities will focus on short term profits and thus avoid investing in long term projects.
  • Private entities are more vulnerable during any crisis and sometimes lead to a debt trap.

Challenges to privatisation:

  • One of the biggest hurdles in privatisation is the strong worker unions of Indian Railways and herculean task to convince union workers.
  • The Indian Railways moves over 2.3 crore people and 3 million tons of goods every day. It is not meant for purely for profit but public welfare.
  • The government needs to take a bold and proactive approach in dealing with both political parties and trade unions and comes to a common agreement. 
  • Many take up any government job just for the sake of job security, and this greatly affects the life of pensioners.

Bibek Debroy Committee Recommendations:

  • The Railway Board had constituted a committee for the mobilisation of the resources for major railway infrastructure projects and restructuring of Railway board and Railway ministry.
  • The committee submitted their report in June 2015, which has opted for the privatization of rolling stock like wagon and coaches.
  • The committee took various railway restructuring experience and focused on the model of British experiment and favoured changing institutional structure between government and railway board.
  • Increase in the link of passenger fares to better passenger fare.
  • Create a separate company for the railway infrastructure and added if the infrastructure becomes profitable, then there is no bar on the government to have its own operators in the interest of competition.
  • The committee recommended to amend the Indian Railways Act and allow private players to levy a tariff.
  • Independent regulator to encourage private entry for both freight and passenger trains in competition with Indian railways.

Way forward:

  • India should have a rail system that not only reliable, safe and efficient but is also cost-effective and accessible, both with respect to the movement of people and goods.
  • Instead of privatisation of railways government can do better utilisation of existing infrastructure, prioritise projects which can improve capacity, timely completion of projects, need to maintain and upgrade the existing network and ensure that dedicated freight corridor (DFC) are to be completed on time.
  • Indian railways have to ease organisational rigidity through structural reforms and consider the opening of ownership and operations.
  • Indian railways should revisit and rationalise fare structures and subsidies to make the freight and passenger segments sustainable and to expedite the process of establishing the Rail Development Authority (RDA). Indian Railways should set up an independent homologation and standardisation agency to improve the speed, reliability and adopt new technologies and ensure that there are no interim changes in tariff and non-tariff rules.
  • Indian Railways should set up an independent regulator to take a decision regarding price regulation and enhancement of non-fare revenue and to manage private entities to ensure transparency and accountability.

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