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Finance Minister Nirmala Sitharaman in her budget speech said that the Indian railways will use Public Private Partnership model for faster development, rolling stock manufacturing and the delivery of freight. Railways will need 50 lakh rupees between 2018 to 2030 to complete the sanctioned projects. Finance Minister gave the Indian railways highest ever outlay for capital expenditure amounting to 1.6 lakh crores rupees and a budgetary allocation of 65837 crores rupees. The railways would invest more in sub-urban railways through special purpose vehicle like rapid regional transport system. Railways are also expected to launch a massive station modernization plan this year.

Indian Railways (IR) has been the prime movers of the nation. IR is the second largest railway system in the world under single management. IR has historically played an important integrating role in the socio-economic development of the country. Despite reforms, the efficiency of service delivery is stumbling block in overall progress. 


Potential areas where private participation can be done:

  • Indian railway is suffering from low investments, poor capacity, congestion, low speeds, and poor conditions of railway stations.
  • The resources are not sufficient to make up for the investments required.
  • PPP approach can be used to transform the railway in different areas comprising from ticketing,catering, station construction and upkeep, rolling stock manufacturing, signalling etc.
  • The Bibek Debroy Committee, which was set up to suggest ways to mobilise resources for the Indian Railways and restructure the Railway Board, has favoured privatisation of rolling stock: wagons and coaches.


Benefits of private investment in Railways:

  • Opens opportunity for returns from investment in Rail Projects.
  • Improved Infrastructure – It will lead to better infrastructure which in turn would lead to improved amenities for travelers.
  • People’s expectation has changed and we need to cope up with those so private investment is the way for providing higher services.
  • Lesser Accidents –  Because private ownership is synonymous with better maintenance, supporters of privatisation feel that it will reduce the number of accidents, thus resulting in safe travel and higher monetary savings in the long run. 
  • Augmentation of railway infrastructure and decongestion of the railways.
  • Ensure timely availability of Rail Infrastructure to the beneficiaries viz. Port, Industry and States.
  • Better maintenance and efficiency in implementation of projects.
  • It leads to simplification of cost recovery for the money spent by the government in setting up the infrastructure. It would be profitable as the government would charge the operator
  • The move would foster competition and hence lead to overall betterment in the quality of services.



  • Absence of independent regulator in the railway sector. In the absence there are chances of litigation or other issues as cropped up in the road sector.
  • Government has water, river, health and education to look for and therefore limited finance available for railways.
  • Coverage Limited to Lucrative Sectors: An advantage of Indian Railways being government- owned is that it provides nation-wide connectivity irrespective of profit. This would not be possible with privatisation since routes which are less popular will be eliminated, thus having a negative impact on connectivity. It will also render some parts of the country virtually inaccessible and omit them from the process of development.
  • No past experience in the PPP model for the implementation of projects for railways.
  • Fares: Given that a private enterprise runs on profit, it is but natural to assume that the easiest way of accruing profits in Indian Railways would be to hike fares, thus rendering the service out of reach for lower income groups.
  • Trade Unions.
  • Affects socio-economic development: This will defeat the entire purpose of the system which is meant to serve the entire population of the country irrespective of the level of income
  • Accountability: Private companies are unpredictable in their dealings and do not share their governance secrets with the world at large. In such a scenario it would be difficult to pin the accountability on a particular entity, should there be a discrepancy.


Way forward:

  • Link increase in passenger fares to better passenger services.
  • Dedicated freight corridor to generate capacity.
  • Create a separate company for railway infrastructure.
  • Policies need to be aligned.
  • Open access for any new operator who wishes to enter the market for operating trains
  • Separate suburban services and run them as joint ventures with state governments.
  • Private entry into running both freight and passenger trains in competition with Indian Railways
  • Separation of rail track from rolling stock



High costs and lower returns, policy uncertainty, absence of a regulator to create a level playing field, the lack of incentives for investors and procedural or operational issues have significantly restricted private sector participation.

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