Why Indian Railways can't be privatised easily?

Indian Railways remains one of the most challenging sectors to privatize, despite India’s success in leveraging Public-Private Partnerships (PPPs) in aviation, inland waterways, and infrastructure. Several past attempts at privatization have failed, revealing deep-rooted structural, financial, and operational challenges.

The Privatization Attempt That Fell Flat

In 2019, the Indian government aimed to privatize 150 passenger trains across 100 key routes, expecting ₹30,000 crores in private investment. The plan was designed to modernize rail travel, improve service quality, and reduce the financial burden on the government. However, the initiative did not go as planned.

• Private operators were required to fully fund, operate, and maintain the trains while also sharing revenue with Indian Railways, creating a high-cost, high-risk, and low-reward model.

• Out of 100+ proposed routes, only a quarter attracted interest.

• By the final bidding round, only two players remained—one being the government-backed IRCTC, which eventually won.

• The lack of private sector enthusiasm rendered the entire privatization effort ineffective, bringing Indian Railways back to square one.

Lessons from Other Sectors

The privatization of other transport sectors in India offers insights into the challenges faced by Indian Railways:

• Aviation: After privatization, airport charges such as landing and parking fees skyrocketed, leading to higher airfares.

• Delhi Metro’s Airport Express: Initially operated by Reliance Infrastructure, the line struggled due to high ticket fares and low ridership. The Delhi Metro Rail Corporation (DMRC) later took over, reducing fares and reviving demand.

Indian Railways’ Core Financial Challenges

One of the biggest hurdles to privatization is the railway’s financial health:

• Indian Railways has an operating ratio of 98.43%, meaning it spends ₹98 for every ₹100 earned, leaving little room for profit.

• 70% of costs go toward salaries and pensions, limiting funds for infrastructure expansion and modernization.

• Passenger services operate at a loss, recovering only 57% of costs from ticket sales. The shortfall is covered by freight revenue, but high freight charges push businesses toward road transport instead.

The Way Forward: Key Solutions

Rather than outright privatization, Indian Railways can adopt a phased approach to financial sustainability:

1. Gradual fare increases: Between 2017-2022, fares rose only 3% annually, while India’s economy grew at 6-7%. Modest, steady fare hikes could help improve revenue without causing major disruptions to passengers.

2. Cutting non-core expenses: Indian Railways currently runs hospitals, schools, and other non-essential services. Privatizing these functions could free up resources for core railway operations.

3. Enhancing financial transparency: The railway’s outdated accounting system deters private investment. Adopting a commercial financial model could improve investor confidence and attract private participation in select areas.

Learning from China’s Railway Reforms

China transformed its railway sector by:

• Separating non-core functions

• Streamlining operations for higher productivity

• Ending below-cost passenger services

While India’s railway system has its own complexities, fixing these fundamental issues is essential before privatization can be a viable long-term solution.

The Future of Indian Railways

Privatization may not be the immediate answer, but a hybrid model with selective private investments in non-core areas like station management, catering, and freight services could be a practical step forward. Ensuring gradual, well-planned reforms will be key to transforming Indian Railways into a world-class transportation network.