A Study of

Privatization In
Passenger
Trains Operations
-By Chaitanya Wasnik
(181031)
-Submitted to Prof. Ankur
Kulshrestha
Introduction
● The railways are an important mode of transport in India.
● It has the fourth largest railway network in the world.
● It employs more than 12 lakh individuals.
● Since government businesses are usually poorly managed, most
nationalized businesses by the government end up being
mismanagement and that reduces efficiency of the business.
● To counter these and to further boost the services offered by Indian
Railways, the Government of India has been considering
privatization.
Objectives
● To see how privatizing the railways helps the
economy, the arguments in favour and against
privatization and public aspirations associated with
it.
The Objectives:
■ Provide a detailed overview of the Indian Railways.
■ Research privatization in international scenario.
■ Understand the complexities of privatization in
India.
Literature Review – Ancient History
● Privatization has a long tradition, dating back to
Ancient Greece, when governments outsourced
nearly everything to the private sector.
● The bulk of services in the Roman Republic is
performed by private individuals and businesses,
including tax collection, army equipment etc.
● During China's golden age, the Han Dynasty, one of
the first ideological movements toward privatisation
occurred.
Literature Review – History (20th Century)
● Between 1933 and 1937, Nazi Germany saw the first
mass privatisation of many state-owned companies.
● In the 1950s, the United Kingdom privatised the
steel industry, and the West German government
sold the Volkswagen's majority interest to small
investors in public equity offerings in 1961.
● Privatisation gained worldwide traction in the 1980s
under Margaret Thatcher in the United Kingdom and
Ronald Reagan in the United States.
Literature Review – History (20th Century)
● The privatisation of British Telecom and British Gas in the
1980s were the biggest public share offerings in the United
Kingdom.
● In 1993, the privatisation of British Rail occurred.
● With funding from various international funding the
governments in Eastern and Central Europe and Russia
participated in comprehensive privatisation of state-owned
companies in the 1990s
● Privatisation flourished in Latin America in the 1980s and
1990s. Various services were quickly sold to the private sector.
Literature Review – History (20th Century)

● Japanese National Railways was privatized in 1987 and broken

into six regional rail companies and one freight company.
● In India, the Ministry of Railways declared on 1 July 2020 that
151 trains on 109 pairs of routes would be operated by the
private sector.
● By 2023, in 12 clusters, private trains will tentatively start
running. Private sector investment to the tune of 30,000 crores
is planned.
● The right to purchase locomotives and trains from their source
of choice would be granted to private companies.
Literature Review - Forms
● Privatization can refer to a number of things:
■ Deregulation
■ Outsourcing
■ Selling Assets
■ Privatization from below
■ Manager Buyout
Literature Review - Results
● Around the world, privatisation resulted in a
variety of consequences. Depending on the
privatisation model used, the results of
privatisation can differ.
● Privatization in dynamic industries with well-
informed customers continuously improved
productivity, according to research conducted by
the World Bank in 2000.
● A negative relationship between privatisation and
economic growth may be due to a lack of effective
governmental reforms.
Literature Review – Experience in US
● In the United States, the freight rail sector is almost
entirely owned by private companies.
● Unlike in other countries, where rail infrastructure
and rail operations are managed by different
bodies, in the United States all of it is controlled by
the same body.
● Railways also collaborates to share infrastructure
or services with private sector.
● Passenger rail is largely government owned or
supported. The National Railways still provides
intercity passenger rail service.
Literature Review – Experience in US
● In the US, railways were in private hands and regulated
by the Interstate Commerce Commission (ICC), leading
to disorder and careful scrutiny that threatened to upset
the structure of the market.
● The two pieces of legislation have changed everything in
this market: the Railroad Revitalisation and Reform Act
(1976) and the Staggers Act (1980).
● As a result, the railways were deregulated, collective rate
was relaxed and barriers to entry and exit were removed.
● Deregulation in both sectors of the transport market has
had beneficial effects. As a consequence of productivity
gains, transport costs were reduced and there was a
significant increase in freight traffic.
Literature Review – Experience in UK
● In 1994, privatisation of the British rail started and
it had been completed by 1997.
● Massimo Florio did social welfare study of the
British privatisation programme pointed to the lack
of any productivity shock arising from the reforms.
● The effect of the UK productivity surge under the
previously nationalised firms varied depending on
the industry. It happened before privatisation in
some cases, and it happened after privatisation or
many years later in others.
Literature Review – Experience in UK
● The effect of British Rail privatisation has been hotly
debated ever since the process was completed media, people
and the industry have discussed the effect of privatisation.
● The key topics of the discussion concerns whether the
process has accomplished its main goals whether to
renationalise or otherwise make substantial changes to the
post-privatisation model.
● After the Hatfield rail crash in 2000 and the Potters Bar rail
crash in 2002, safety was also a major concern, revealing
shortcomings in the post-privatisation maintenance regimes.
● According to a report by the European Commission, the UK
rail network changed the most out of all 27 EU countries
between 1997 and 2012.
Literature Review – Experience in Japan
● In 1987, Japanese National Railways was privatized and
divided into six regional rail and one freight companies.
● Privatization allowed commercial and real estate
businesses to be operated by the Japan Railways.
● Today, non-transportation revenues account for about a
third of Japan Railway East's revenues, and Japan
Railway Kyushu accounts for almost 60 %.
● Large real estate portfolios are managed by other major
rail providers in the United States, the United Kingdom,
and France, but most of them do not operate directly in
the buildings they own.
● Second, profitable Shinkansen (bullet trains) and express
trains are available to the Japan Railways that subsidize
other smaller, unprofitable lines.
Literature Review – Experience in Japan
● There are still limitations. Train privatization in Japan has had
costs. The government took on trillions of JNR long-term debt,
leaving taxpayers with a ¥14 trillion burden. It has also cost tens of
thousands of jobs to privatize.
● The future of the Japan Railways, however, is not guaranteed. One
case in point is Japan Railway Hokkaido, the unprofitable operator.
● To help the operator retain its network, the government has just
pledged ¥40 billion more. The challenges facing Japan Railway
Hokkaido are both geographical and demographic; in 2016, one
eighth of the company's stations had one passenger or less a day.
Health scandals have shaken it in recent years, too.
Methodology
● Data is obtained from a survey to collect primary data.
Data was obtained from many people who filled out
the survey questionnaire prepared on Google Forms.
● Secondary data is the data that is already collected in
the past. The secondary sources of data for the study
was taken through various sites on the internet,
research papers published on sites like researchgate,
Data published by Indian Railways on the internet,
Newspaper articles online, etc.
Summary Output
Regression analysis of three independent variables, namely: rail facilities, travel
more easily at a higher cost and, given the price gap between 1000 and 1500
rupees, one would travel by air or train to one dependent variable, the
railways were to be privatized. It was examined.
Data and Findings

● More than 70% of railway officers used IT permitted services such as

internet ticketing, enquiry booths, touch screens, etc. etc.
● 94% of the railway officers surveyed reported that they had seen service
changes in the railway system have been seen in the last five years.
● 57% of the railway officers surveyed were pleased with the railway
facilities/facilities.
● 86% of the railway officers surveyed claim that the railways are giving
the value of money for the services provided.
● 85% of railway officers surveyed rated general services supported as
“Nice” by the Railways.
Discussions
● Due to free market competition, studies indicate that private
market forces can produce certain products or services more
effectively than governments. This leads to cheaper costs, better
service, more options, fewer corruption, less red tape, and/or
faster distribution over time.
● Certain public goods and services, according to opponents of
privatisation, should remain primarily in the hands of the
government to ensure that everyone in society has access to
them (such as law enforcement, basic health care, and basic
education).
● When the government provides public goods and services to the
general public, such as defence and disease control, there is a
positive externality. Some national constitutions effectively
define the provision of justice, tranquilly, defence, and general
welfare as the government's "core businesses”.
Factors in Favour and Opposition
● Performance ● Poverty
● Improvements in ● Employment loss
Technology ● Reduced wages and
● Profits benefits
● Gains in employment ● Low-quality goods and
services
Conclusion
● International experience has demonstrated that
government funding and financing are required for
railways as seen in the privatization experience of
foreign countries.
● The poor standard of service, catering and punctuality,
internal revenue, growing amount of injuries, high
ticket prices and lack of new technology have criticized
IR. Privatization will this all be strengthened. But It is a
complex problem if not handled carefully can be a
disaster.
References
● Dube, Dr. Kalpana. Passenger Satisfaction Survey Report. Lucknow,
Indian Railways Institute of Transport Management, 2012.
● Fernandes, J. (2020, July 03). Indian railways Privatisation: A look at
other countries that have taken this route. Retrieved May 09, 2021,
● Parker, David, and David S. Saal. International Handbook on
Privatization. 2003.
● Meyer, John R., and Jose A. Gomez-Ibanez. going Private: The
International Experience with Transport Privatization. Brookings
Institution, 1993.
● "European rail study report". Archived from the original on 2015-11-
17.
● Ministry of Railway. “Indian Railways Year Book 2018-19.” Indian
Railways, Ministry of Railways, 2018.
● “"Rail Privatisation in the UK - Economics Help.” Economics Help, 28
November 2017.
● A review of privatisation and regulation experience in Britain.
Institute of
● Economic Affairs (IEA), Beesley series. Presentation at London
Business School, 7 Nov 2000, Beesley series of lectures on
Thank You