No. 62, January 2016
Railways on Track for Privatization
Constructing Theoretical Justifications to Suppress People’s Social Claims
Debroy Committee Report
Railways on Track for Privatization
Part I: Starving Rail
The extreme miserliness of the Indian State toward the Indian Railways is a striking example of economic irrationality; but it is an irrationality imposed by the reigning class interests. A thorough-going programme of public investment in the Railways would increase the productivity of the economy as a whole, render Indian industry more competitive, and do so without placing any net burden on Government finances (as we shall show). Nevertheless, the State refuses to undertake such a programme.
The reason for this seemingly puzzling refusal is that such a public investment drive in the Railways would in fact run counter to the entire thrust of current State policy. That thrust requires (among other things) that the public sector be systematically starved of investment, so as to create investment opportunities for predatory international financial capital. State policy thus deliberately creates a situation in which privatization becomes the only option on the table. (No positive results of public sector investment are permitted to emerge or survive either, since such results would cast doubts on the broader project of privatization.) Hence even an infrastructure such as the Railways, so critical to India’s material goods-producing sectors and to the general health of the Indian economy, is held hostage until it can be made to yield profits for financial interests.
Neoliberal economists argue glibly that such a profit orientation will make the Railways both self-sustaining and more efficient. However, their argument betrays a basic lack of understanding of the working of capital-intensive infrastructure as such. Railways require very large investments, and these serve the economy best when they generate only moderate, stable revenues, over long periods. There is an inherent contradiction between (i) trying to generate financial returns on rail investment high enough to attract footloose private finance; and (ii) ensuring railways play their role, efficiently, as the veins of the material economy.
In the post-World War II period, even the ruling classes of capitalist countries generally concluded that the railways should be under public control. Generally this was done by creating a single, state-owned firm, with responsibility for both the railway infrastructure and for providing all train services. Given its monopoly status, railways’ investments, prices and services were determined by their respective governments, who often had to factor into these decisions their broader social and economic considerations, rather than purely commercial ones. However, in recent decades, as the ‘real economy’ worldwide became increasingly subordinated to the reign of finance, this once-accepted principle was undermined.
But in fact, what the Railway minister contrarily proposes to do is to continue to starve the Railways of public sector investment. His purpose, more or less in continuity with that of his predecessors, is to prepare the Railways for the takeover of its profitable segments/activities by the private sector, including by foreign investors. In case any loss-making routes/activities are to be transferred to the private sector, they will be ensured an attractive Government subsidy (which is called ‘Viability Gap Funding’ when it is given to the corporate sector).
Such a cannibalization of the Railways would come at a heavy price to the economy as a whole. Rail privatization in the U.K. since the mid-1990s is the outstanding case, an unmitigated disaster. After privatization, the British railways have been subjected to extreme fragmentation (with an estimated 2,000 firms involved in maintaining trains, steep fare hikes (the British pay the highest rail fares in the world), underinvestment (the most crowded trains in Europe, closure of thousands of stations and hundreds of routes, and sharp deterioration of rail safety), and an increase in State subsidy to the railways to five times the level prior to privatization.
The significance of rail transport
Despite the obvious economic, social, and environmental benefits of rail transport, actual investments by successive Indian governments have moved in the opposite direction. The share of rail in transport sector Plan expenditure fell from a peak of 66-67 per cent in the Second (1956-61) and Third (1961-66) Plans to just 30 per cent by the Eleventh Plan (2007-12). As a result of this famine of investment,the Railways are unable to meet demand on many routes. On the High Density Network (between major metropolises), 189 of a total 212 sections have already reached saturation, with 141 sections having levels over 100 per cent. Inadequate investment has also compelled trains to run at an average speed of 60-70 kmph, less than half what is possible even with the technology already available with the Indian Railways (IR). Freight trains in India run at an average speed of 24-25 kmph.
Over the years, the Railways’ share of freight tonnage has fallen from 89 per cent in 1951 to 30 per cent in 2007-08. (Its share of passenger transport has fallen from 74 per cent in 1951 to just 13 per cent in 2004-05, with the difference accounted for by the rise of road transport.) A RITES study calculated that the irrational distribution of freight flows over different modes of transport could have cost the Indian economy Rs 38,500 crore in 2007. A McKinsey study went further, and put the loss at 4.3 per cent of the country’s GDP; it argued that if the current trajectory continued, the loss would rise to 5 per cent of the GDP by 2020.
The question is: since the economic and environmental benefits of rail are not in dispute, and the demand for rail services is so great that IR is not able to meet it, what is preventing the Government from making the necessary investments? In answer to this question, report after report repeats the same refrain: “the Government lacks the necessary funds.”
[Part II describes the Debroy Committee report’s plea for privatization. Part III refutes the argument that the Government lacks funds for investing in the Railways.]
 Of course, this was not the case with the introduction of railways in India under British rule, when equipment, even rails and fishplates, were imported.
See, for instance, “Help fight fare rises and push for railwayrenationalisation”, Neil Clark, Guardian, 2 January 2012;http://www.theguardian.com/commentisfree/2012/jan/02/farerisesrailwaynationalisation; “Privatised rail will remain a gravy train”, Philip Inman, Guardian, 4 July 2011,http://www.theguardian.com/business/2011/jul/04/eastcoastrailprivatisationvirgin; “Rail privatisation has failed – and the NHS is hurtling down the same track,” Oliver Huitson, Guardian, 10 March 2012,http://www.theguardian.com/commentisfree/2012/mar/10/railprivatisationfailednhs
 Because of the lower surface friction and lower wind resistance.
 National Transport Development Policy Committee (NTDPC), India Transport Report, 2014, vol. III, p. 8.
 That is, line-capacity utilization levels over 80 per cent. The optimum level is considered to be 80 per cent, as smooth running of trains requires some slack in line-capacity utilization to absorb and recover from unforeseen disruptions. Ibid., p. 13.
 Economic Survey 2015-16, p. 94.
 NTDPC,op. cit., p. 25.
All material © copyright 2017 by Research Unit for Political Economy