Passenger services are cramped and slow.

Photographer: Noah Seelam/AFP/Getty Images

Making India's Trains Run

Dhiraj Nayyar is a journalist in New Delhi. Trained as an economist, he has worked at the Financial Express, India Today and Firstpost.com. He is editor of "Surviving the Storm: India and the Global Financial Crisis."
Read More.
a | A

On Thursday, when India’s Railways Minister stands before Parliament and presents his budget for the year, he’ll be enacting an archaic ritual. The practice began during British colonial times, when the expenditures and revenues of the railways were more significant than the finances of the colony itself. No other Indian ministry or department receives the same privilege. It’s debatable whether the railways should anymore, too. 

QuickTake India's Aspirations

Prime Minister Narendra Modi has put fixing India’s rail system at the center of his reform agenda for good reason. The country’s famously dilapidated trains touch the lives of almost every citizen, carrying 8 billion passengers a year. Faster, cleaner, cheaper services would obviously be a vote-winner. Just as importantly, smarter and more efficient freight services are critical to his vision of transforming India into a manufacturing power.

India’s 65,000-kilometer rail network -- the world’s fourth-largest -- is impressive for its scale alone. But when you consider that the British built 53,000 kilometers of track before they left in 1947, that figure becomes more sobering. By contrast, China had only 22,000 kilometers of track in the late 1940s, which it's built up to 100,000 kilometers today.

The contrast between the two Asian giants is instructive in other ways. India’s trains carry four times the number of passengers as China’s do, but freight traffic has grown far slower. Indian trains transported 44 billion tons of goods in 1950, about the same as China’s 39 billion tons. By 2011, however, India’s total had risen only to 600 billion tons, while China’s had grown to 3 trillion tons. India has traditionally made freight services expensive in order to subsidize poor passengers, which has encouraged companies to ship goods by road instead of rail. That’s not only slowed down trade but contributed to the country’s toxic air pollution. And passenger services still lose money -- an expected $7 billion in 2014-15.

The reluctance to hike passenger fares means the government has precious little money to spend on upgrading infrastructure, improving safety standards or speeding up the trains themselves. (Allegedly fast “express” trains run at an average speed of just 50 kilometers per hour, while freight trains run at only 30 kilometers per hour.) Most revenues are doled out to over 1 million employees, or spent on adding new trains without increasing track capacity.

Perhaps Railways Minister Suresh Prabhu, a former banker, will be bold enough to jack up fares significantly, slash red tape, and invest in building new track and improving services. All that would make for a sensible and reform-minded budget. But to fix the railways, the government needs to think more radically.

The first thing the ministry should do is split up responsibility for operations -- making sure the trains run on time -- and infrastructure. The railways are already divided into 16 regional zones. These should be hived off from the ministry and consolidated into four or five corporate entities, each with its own CEO and board. These new state-owned companies should be allowed to compete against one another by lowering fares and improving services within their zones, both on trains and in stations.

A separate government-owned entity should be set up to focus exclusively on countrywide infrastructure -- laying new track, as well as upgrading the existing system, signaling and safety measures. This company could raise revenue by charging the regional entities for using its infrastructure, while tapping capital markets for additional funding. Indeed, once set up as corporate bodies, all these entities should be able to attract private investment, both domestic and foreign.

An independent regulator would need to be created to oversee all of them, of course, to ensure against abuse of consumers. It could also handle safety and infrastructure issues. What India doesn’t need, though, is a separate Ministry of Railways. Policymaking for both road and rail should be unified under a single Ministry of Transport. Given the sums Modi’s government has pledged to invest in upgrading the country’s rails, highways and ports, coordinating plans will be essential.

It will be interesting to see what Prabhu lays out in the railways budget on Thursday. It would be even more interesting -- and encouraging -- if it were India’s last.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Dhiraj Nayyar at dhiraj.nayyar@gmail.com

To contact the editor on this story:
Nisid Hajari at nhajari@bloomberg.net