Friday, May 06, 2011

India's Railways & Competition

Will the involvement of the private sector make India's railway services more efficient and cost effective?

Given the level of efficiency and sophistication achieved by the railway sector in countries like Japan, it is perhaps fair to note that the Indian Railways has a long-long way to go. In Japan,  the railway industry is bristling with competition among private players who - especially after 1987 - have steadily moved beyond manufacturing of locomotives and rolling stock into operating most of the urban networks.

In India, even manufacturing of rolling stock continues to remain the exclusive forte of public sector companies. Unlike in telecom or roadways, the level of involvement of private players in railways continues to be blocked by successive governments. Recent statements by Mamata Banerjee make it clear that IR will only tolerate private sector encroachment into their "non-core" services such as catering and land development. Perhaps the only exception here is the token presence of private players in freight transport.

According to Frederic Jenny, Economist turned Judge and Chairman of the Committee on Competition Law and Policy, OECD Paris, there are two reasons why governments keep sectors like the Railways a government monopoly: First, a developed communication network generates positive externalities, and, second, competition in setting up railway infrastructure would be wasteful. Having supported government intervention, he goes on to say that provision of competition in railway services, for example competition in operation of freight or passenger trains, can be quite useful to improve the quality of the service and lower its cost.

The benefits of competition, however, continues to elude the railways. In the latest policy document, "Railway 2020", plans for privatization of selected railway services have been either slowed down. Recommendations of the Rakesh Mohan Panel (2001), prescribing a drastic overhaul of the Indian Railways, continues to be mothballed...


* S., Arun (2011). 'Competition laws bring economic democracy' - Interview with Frederic Jenny, Economist turned Judge, Chairman of the Committee on Competition Law and Policy, OECD Paris. 3 May 2011
* Why Indian Railways Must be Privatized (The Broad Mind, Takshashila, 25 Mar 2011) -
* Railways runs on privatization track (ToI, 30 Dec., 2005) -
* IFC- Financing PPP in Indian Railways -,%20IR,%20WORLD%20BANK/26.03.09/Vipul.pdf
* Rakesh Mohan Panel Moots TRAI-like Panel for Railways -
* GoI Position Paper - PPP in  Railways -
* PPP is not Privatization - Expert (Zee News, 12 Jul 2009) -

1 comment:

Abhishek said...

can you explain positive externalities in railways.