Competition on track

The announcement by the railway ministry that it will allow private operators to offer container freight services is a huge step forward in reforming the sector. Railway reforms in recent years have been confined to moderate re-balancing of tariffs. Bolder initiatives, such as those recommended in 2001 by the Expert Group chaired by Rakesh Mohan, to corporatise the system, open lateral entry for professionals and create opportunities for viable private entry within the confines of public ownership of the system as a whole, have been elusive thus far. The latest step is a clear break from the past in that it operationalises the separation between the system's fixed infrastructure""track, signalling and communication""and its mobile resources, essentially rolling stock. Railway reforms in many countries have been based on this separation, because it enables competitive entry through fragmented ownership in rolling stock while retaining centralised control and co-ordination of the track network. If multiple airlines can simultaneously use a single airport, there is no reason why multiple train operators cannot simultaneously use the same track and station or yard facilities. The railway minister, Lalu Prasad, needs to be complimented for having the vision and courage to take a reformist step of great importance, which his many predecessors did not.

Importantly, this decision has been taken after extensive consultations with several companies that expressed interest in the railway freight business. The licensing and operating conditions appear to address their collective concerns. Given this, the policy is likely to see a quick response by credible operators. Door-to-door container service, which is what they will offer, has so far been the exclusive domain of the Container Corporation of India (Concor), a listed public sector entity that was created by corporatising the railways' own container services. Even if private sector initiatives take time to materialise, the mere prospect of competition will induce a monopolist to lower its prices while improving quality. The telecom department's response to private entry is testimony to this. Over time, competitive pressures will induce both lower prices and quality improvements. Importantly, the announcement will provide a powerful incentive to the railways to reduce if not stop the subsidisation of passenger services through high freight rates, because the freight operations have to stay competitive.

However, it must be remembered that, even if the new private players invest in the best equipment and systems, they are ultimately dependent on the railways to keep their rolling stock moving. Given the deteriorating quality of track infrastructure and the absence of any across-the-board programme to refurbish it in quick time, the economics of private container services will be just as vulnerable to competition from roads as the current freight business of the railways is, particularly as the national highway system converges to its planned capacity. If the railways do not make credible resource commitments to upgrading their fixed infrastructure, it will be tantamount to one hand taking away what the other gives. The dedicated freight corridor along the golden quadrilateral that has been talked about recently is one concrete example of what is needed to realise the full benefits of private provision of freight services. In fact, such a corridor could command premium wheeling charges because of the amount of time it would save shippers, which would in turn significantly reduce its dependence on public or concessional funding.

In short, separating the operations of fixed and mobile infrastructure is an excellent move. But, its benefits depend on the efficiency levels of the two being comparable. Without a clear and time-bound programme to upgrade its fixed infrastructure, the private freight business will deliver less than it promises.