Let the iron rooster take wing

Indian Express, 26 February 2005

Introducing competition into the Railways would provide a range of choices to the consumer and make train travel more efficient

Media reports suggest that the Indian Railways will allow private rail containers to run on rails owned by it. This would be a very good thing. It will introduce competition in rail freight transport, which has until now been dominated by the Railways.

In fact, the situation is so bad that many companies have given up on the Railways. Shipment by train is avoided because there are unpredictable delays and theft. What is being ignored in both cross-subsidisation, which raises freight charges, as well as the inefficient running of the Railways is the cost to the economy.

Technologically the Railways constitute the most efficient means of surface transport. The energy requirement of the Railways compares to that of container traffic. It is much lower than that of road transport. For example, the energy consumption for freight movement on railroads is 440 joules/kgkm, while that required for trucks is 1,836 joules/kgkm: a difference of four times. In addition, the Railways generate less pollution, and involve fewer accidents. However, the Railways have witnessed a steady loss of market share of freight to road transport. This share is down from 82 per cent in 1970 to less than 40 per cent now.

Regions near the coast tend to have more trade. The movement of people and goods, which is made possible by cheap sea transport, gives greater prosperity near the coastline. In land-locked countries higher poverty occurs in part because of the lack of trade. The cost of transportation is high, which acts to choke off trade. In India access to trade is central to the growth prospects of Madhya Pradesh, Bihar, Kashmir or the North-eastern states.

Why are roads beating rail even though rail is superior technology? The answer lies in the role of the government. What the government is doing right in roads is to focus on the public good—roads. Its job is to build roads and charge tolls. It does not try to run trucking companies. The job of the state is clear in that it has to provide roads because roads are public goods. Roads are a natural monopoly and consumption is non-rival. Running a truck on the road is a private good. It is the job of ordinary competitive markets. A million competing truck operators carve up the transportation industry, using roads.

But this is not how the Railways work. It is the job of the Railways to build the road (rails) as well as to run the trucks (trains). There is no competition in the business of running trains. The inefficiency of the Railways as the monopoly trucking company eats into the efficiency of trains as the most efficient form of transportation.

An argument can be made about safety: that a government monopoly must run trains since multiple private competing vendors will be unsafe. To use the road analogy once again, it is the job of the state to build systems—such as traffic lights—and to enforce rules. Yes some drivers will make mistakes, and some accidents will take place. The public-sector employees who drive trains for the Indian Railways are hardly free from mistakes, for India has one of the worst rates of accidents in train travel in the world.

Arguments about safety are typical in the economic reforms process. Vested interests and incumbent government entities always invoke national security in one form or the other when protecting their turf and blocking reform. Venerable examples of this include the DoT, Ministry of Civil Aviation, RBI, and the Ministry of Information and Broadcasting. Safety is obviously important and any proposal to bring competition into rail transport must have a fully articulated plan for how to ensure safety. But as with roads or airlines, it is quite feasible to have state involvement in the genuine public goods (like roads) and have competitive markets in the transportation services (like truck companies) without compromising on safety.

How will the private trains run? Consider a route like Delhi to Jaipur. Multiple competing private and foreign companies should be able to run trains on the rails, which should be owned and operated by the state. These companies would pay the state a fee per train, just as airlines might pay a fee per landing to an airport. Just as all airlines must speak to a single ATC, all train companies must obey a single IT-centric safety system. But unlike airports, it appears inefficient to have railway stations with multiple ‘‘terminals’’ for distinct train companies. All competitors should be required to have IT hook-ups into a single reservation system.

From the viewpoint of a customer, it should be possible to go to a single website or a single ticket window, and get a list of competing trains which can run from Delhi to Jaipur. As with bus services, there would naturally be many different product offerings—some cheaper than others, placed at various times of the day, etc. All vendors should be required to work with an identical electronic ticket structure, so that a customer can buy a ticket from any venue and ride on any train.

Competition between the multiple vendors would drive down prices and deliver a range of services to customers. If there is a single railway line (like a single runway), the day can be cut up into five-minute slots and there can an allocation of slots to train companies. If multiple companies desire a certain slot, then there can be an auction to select who should get the slot. Revenues from this auction should go back into building more rail infrastructure (stations and railway lines).

Under this proposal, an active role for the state would continue to be the business of laying tracks and building railway stations. There are legitimate questions and concerns about whether adequate investment would go into this, and whether this is being done in the most efficient manner. An inefficient state structure would end up extracting usurious fees per train from the private companies operating trains. However, one part of the puzzle—that of running trains—would shift over the ordinary competitive markets.

The proposed structure is exactly analogous to shipping, roads and aviation—the three other transportation sectors. In each of these three areas, there is a competitive private sector industry in the form of shipping companies, truck companies and airlines, while there is continued state involvement in the public goods of ports, roads or airports. We have seen the benefits of shifting out of an Indian Airlines monopoly. Given the importance of railways in India, the gains of shifting out an Indian Railways monopoly will be even bigger.

Ila Patnaik

Ila Patnaik