The recent proposal by the Department of Industrial Policy & Promotion to permit 100 per cent foreign direct investment in the Indian Railways is a step in the right direction. The resulting investments will hopefully enable the railways to inch closer to fulfilling its potential fund requirement of approximately Rs 8.4 lakh crore as estimated in the 12th Five Year Plan.
I hope that this proposal, if and once implemented, serves as a precursor to instituting markedly higher private sector participation in the Railways in the future. Currently, the Indian Railways has an implicit disincentive in providing efficient services owing to its distinct business model, which is fundamentally uneconomic in nature. Under the pretext of enabling inclusive growth, it tries to maintain artificially low prices at the cost of sacrificing revenues, growth, and innovation.
There is a need for a stronger, market-based railways model that will ensure greater private sector involvement. This model will have several benefits. It will improve efficiency by ensuring a rational availability of wagons, the acute shortage of which continues to hamper our industrial growth. Businesses that choose the more expensive alternative of road transportation will see a significant increase in their margins once this inadequacy in wagons is removed. Road transportation also results in greater coal consumption that stresses the current account deficit through higher imports and augments inflation. We have already witnessed the merits of privatisation in airways. The airline industry continues to observe frequent cost-cutting measures as a result of ruthless price wars, which, on the positive side, precipitate competitive fares and superior quality services for passengers. A privatisation drive in the railways will similarly improve the condition of our stations, wagons, services, and fares.
Harsh Vora Vadodara
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