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Railways’ corporate train model

Topics Covered: Investment models.

 Railways’ corporate train model

What to study?

For Prelims: Features.

For Mains: Need for and significance of the model.

Context: The Kashi Mahakal Express is the country’s third ‘corporate’ train after the two Tejas Express trains between Delhi-Lucknow and Mumbai-Ahmedabad started over the past few months.

What is Corporate train model?

This is a new model being actively pushed by Indian Railways- to ‘outsource’ the running of regular passengers trains to its PSU, the Indian Railway Catering and Tourism Corporation (IRCTC).

How does the model work?

In this model, the corporation takes all the decisions of running the service– fare, food, onboard facilities, housekeeping, complaints etc. Indian Railways is free from these encumbrances and gets to earn from IRCTC a pre-decided amount, being the owner of the network.

This amount has three components- haulage, lease and custody.

  1. Haulage charge includes use of the fixed infrastructure like tracks, signalling, driver, station staff, traction and pretty much everything needed to physically move the rake.
  2. Lease charges on the rake have to be paid as Indian Railways coaches are leased to its financing arm, the Indian Railway Finance Corporation (IRFC).
  3. Custody charge has to be paid for keeping the rake safe and sound while it is in the custody of the PSU.

IRCTC has to pay Indian Railways a sum total of these three charges, roughly Rs 14 lakh for the Lucknow Tejas runs in a day (up and down) and then factor in a profit over and above this. This money is payable even if the occupancy is below expectation and the train is not doing good business.

Benefits and significance for customers and managers:

  1. Being a corporate entity with a Board of Directors and investors, IRCTC insists that the coaches it gets from Railways are new and not in a run-down condition, as is seen in many trains. The quality of the coaches has a direct bearing on its business.
  2. In this model, IRCTC also has full flexibility to decide the service parameters and even alter them without having to go to Railway ministry or its policies.
  3. To that end, the business of running trains can be run with the independence needed to run a business with profit motive. This creates the environment for enhanced service quality and user experience for the passengers.
  4. IRCTC gets the freedom to decide even the number of stoppages it wants to afford on a route, depending on the needs of its business model.

What is Indian Railways’ benefit from this model?

Indian Railways doesn’t have to suffer the losses associated with running these trains thanks to under-recovery of cost due to low fares and its own hefty overheads. The lease on its coaches is also taken care of.

Sources: Indian Express.