Business model

A new passenger business model for railways

In the article “Railroads Must Focus on Non-Bulk Freight” (BusinessLine, June 14), we argued that in a growing economy, freight revenues would continue to be the bread and butter of Indian Railways (IR) and that its passenger segment cannot continue to be subsidized indefinitely.

The railways have been in a rut when it comes to passenger business, with no long-term plan, particularly over the past decade. It needs a new business model to reinvent itself by improving the efficiency and profitability of services. An attempt was made in 2019, guided by NITI Aayog, to introduce private passenger train services, but failed as the tender documents were one-sided with potential operators facing investment financial resources, acute risks and difficult contractual conditions.

Efforts by the railways to introduce their own private semi-high-speed trains have so far met with little success.

The passenger segment faces the following: transformational services like subways, regional rail, scheduled high-speed services, no-frills airlines, and improved highways. Although efforts have been launched to separate rail infrastructure from passenger and freight operations, such a change calls for railway management to develop a 15-year plan to rebuild passenger services using technology and upgrades. customer-centric, including in public-private partnership mode. , wherever advantageous.

The Japanese experience

Let’s look at some international benchmarks for passenger care. The Japanese model approximates the Indian situation of high population density. Japanese Rail was a government entity until 1987 and was subsequently reorganized, first by corporatization and then by privatization. The passenger operation was split between the companies with the operations division based largely on the region with only a few long distance operations extending beyond the respective regions.

Ownership was initially retained by the government, and privatization of some of these companies only began after five years in the early 1990s. Today, Japanese Rail is reorganized into six passenger companies, with leased tracks to operators – 60% to these six companies, 15% to HSR Shinkansen and 25% to private companies operating services with local governments.

The government has pledged to reorganize 49 munitions factories into seven companies as profit centers, with a specific range of products assigned to them. The time has come for the railways to be reset as a regulator and all passenger services transferred to new companies for regional operations and a freight company for national operations.

The Board of Railways can be transformed into a construction, transport and technology agency to oversee these autonomous companies and other technical bodies, but only at the political level without day-to-day responsibilities.

This would facilitate the development of a long-term plan to rebuild passenger services in a cost-effective manner, taking into account high- and semi-high-speed services, with clear targets to reduce journey time by at least 30 % and the introduction of energy-efficient rolling stock to reduce operating costs. . With Dedicated Freight Corridors (DFCs) of 3,300 km, the upgrade to 160 km of tracks parallel to DFCs and the introduction of Vande Bharat trains, a new segment of passenger business that is faster, more efficient and more profitable can be set up in a few years.

Autonomous entities

All upgraded semi-high speed tracks and future high speed tracks can be clubbed and leased to two self-contained equipment, one for North West HSR and Rajdhani/Shatabdi routes of North-Central, Central- west and west and the other for the north-eastern region covering similar routes of Northern, North Central and Eastern Railway as new profit centers. The new entities should be empowered to make all business decisions.

Vande Bharat trains, including its future upgrades, can be operated by these companies as a replacement for Shatabdi and Rajdhani intercity trains, ensuring a paradigm shift in customer experience but with cost effectiveness. These companies may be authorized to earn rental fees from other entities using the track.

Any remaining non-semi-high-speed tracks can be leased to existing administrative units to operate other passenger trains and commuter services in the areas covered by these companies. Since these routes may not be remunerative as the fare for low-end travelers cannot be detached from political considerations, the profit/loss of services may be directly subsidized by the central government and the respective state governments, after having makes states partners. These units may also be autonomous entities of the Board of Railways, except for financial reporting for grants.

Other essential organizations of railways which are not directly related to operations such as Research and Standardization Organization, National Academy of Indian Railways and other training institutes can be kept under management of the Board of Railways.

As for the eight production units of the Railways, they can be separated from the latter and merged to form a Railway Rolling Stock Company on the model of the reforms made for the artillery factories. Along with these reforms, rail freight services should also be addressed and a start can be made by creating a separate company to operate the freight corridors.

Based on the experience and hopefully success of such a model, similar reforms can be replicated in other areas of the railways for passenger and freight traffic.

Shukla is a former director of Dedicated Freight Corridor Corporation of India Ltd, and Mani is a retiree. Managing Director, Indian Railways

Published on

August 01, 2022