Editorial Notes

[Editorial Notes] Railway privatization: India must hasten slowly

The Government of India is planning to privatize running of 150 passenger trains. Moreover, stations are being developed by attracting private players. Finding out its pros and cons.
By IASToppers
October 26, 2019

Contents

  • Introduction
  • Benefits of Privatization of Railways
  • Concerns related to privatization
  • Way Ahead
  • Additional information for Mains and Interview
  • Possible UPSC questions

Railway privatization: India must hasten slowly

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Introduction:

The Government of India is planning to privatize running of 150 passenger trains. Moreover, stations are being developed by attracting private players

train

Benefits of Privatization of Railways:

  1. Safety and punctuality could improve. For e.g. British Railways has seen improvement in these parameters after privatization.
  2. With rise in car ownership costs, rapid urbanization there could be demand for greater utilization of public transport services. The government with limited financial capabilities cannot be expected to solve this problem quickly and efficiently. This provides a case for privatization of essential public transportation means like railways.
  3.  Railway services could attract foreign capital. Additionally, this would create competition between domestic and foreign players. Ultimately, customer satisfaction would enhance.
  4. Competition between players will create competition for increased connectivity to new areas. This would help link new areas into the Railway connectivity map.
  5. Greater manufacturing, research and development expenditure could take place in India.
  6. In the longer run, greater research and development spending could help develop new wagons for movement of goods. When seen in collaboration with point 4 mentioned above, newer areas can transport their goods to the national market cheaply, swiftly and efficiently.
  7. Private ownership would aim to improve services and cut costs to ensure profitability. While creating new employment opportunities.

Concerns related to privatization:

  1. The strong worker unions of Indian Railways need to be convinced. This could be a herculean task.
  2. Any untoward incidents like accidents can cause greater government scrutiny and create regulations which may affect performance or efficiency.
  3. Regulations must ensure level playing field for all players and relevant stakeholders.
  4. Competition from other modes of transport can affect private railway revenues. This could give rise to crony capitalism.
  5. In India, there was no public discussion relating to privatization of passenger trains. This needs to be addressed to ensure greater public support.
  6. Railways is a vertically integrated organization and it is difficult to privatize a portion of Railway operations. It will make coordination difficult between state and private operators
  7. One of the problems of free market system is greater connectivity between sectors of economy. If one sector say banks are hit with any crisis, other sectors of the economy might also take a hit. If such a situation arises among private players in India, it could lead to problem of debt trap. Which can cause a vicious cycle as mentioned below.

Concerns related to privatization

Way Ahead

  1. Privatization would be beneficial for Indian Railways at the moment. The Government could focus on developing railway connectivity to unaccessed areas like North East India, Jammu and Kashmir.
  2. As railway operations are capital intensive, to ensure financial viability for private players, companies can be allowed to venture into new businesses. For example,  Japan as allowed its railway companies to venture into commercial and real estate companies.
  3. Government can split the area of operations on geographical basis, so as to reduce

Additional information for Mains and Interview

Mains:

What is vertical Integration?

In vertical integration, a company or organization assumes control in its production steps. In other words, the company invests in securing and controlling its suppliers, distributors and retail locations. 

For e.g. A Car manufacturing company say Maruti Suzuki, buys a tyre manufacturing company say Goodyear and starts its retail sale services called Nexa, can be said as vertically integrated organization. 

Possible UPSC questions

Do you think privatization of Indian railway is the need of the hour? Give your arguments (15 marks)

 

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