Commuters hang onto a crowded local passenger train in the eastern Indian city of Patna (Reuters file)
Commuters hang onto a crowded local passenger train in the eastern Indian city of Patna (Reuters file)Reuters

Prime Minister Narendra Modi had last week hinted at privatization in the Indian Railways in order to improve facilities on par with that of airlines. With the Rail Budget due to be presented today, here is a look at how privatization can transform the railways, vis-à-vis the railway network in Japan that is known to be the world's best.

Japan was one of the few nations to keep its railway network open to the private sector after the Second World War, while several in the West had nationalized their railways, according to City Lab. It was in 1987 that the government had privatized the Japanese National Railway, which went on to become a profitable venture, reversing stagnation and bringing about improvement of the network.

A study by professor Kenichi Shoji from Kobe University in 2001 pins the success of the Japanese transport to the fact that railway operators are privately owned, which have diversified the business to 'not only survive but thrive'. One example it lists to illustrate the success is that private railway companies have taken up initiative of developing areas where their networks function.

Here are some of the points the study highlights and how it contrasts with the situation of Indian railways –

  • Japanese rail networks are self-supporting, which means that it generates money for its own operating and infrastructure cost. In India, the Railways is a state-owned enterprise, which makes the government run into losses to fund it.
  • The Japanese transportation policy is based on what the users pay, which means that only market-viable services function. In countries such as India, fare revenue is not the primary means to fund the railways. The study points out that Japanese operators have a farebox ratio (the extent to which operating expenses are met by passenger fare revenue) of more than 100 percent. On the other hand, rail fare hikes in India are met with vehement protests, as was seen recently when Finance Minister Arun Jaitley hiked railway passenger fare by 14.2 percent, a move he defended saying was necessary to keep the railways alive.
  • Another point of difference has been the objective of public transport system in Japan and in India. In India, the railway sector has a more 'public-interest' approach, which has led it to create large networks and offer low fares. However, the study shows that such an approach inevitably leads to inefficiencies in service and operation, which is true of the Indian Railways. Japan on the other hand has taken a 'profitability' approach through the private sector role. Private railways operate on a commercial basis, and such a system is said to be profitable in Japan partly because of its large traffic volumes, which is similar to India.
  • Another point of difference where India can definitely borrow a few tips from the Japanese Railway network is that since it is privately driven there is scope for 'long term business strategies', which is usually not possible when political parties take power for a period of five years.

With Modi aiming to bring in private companies to the Railways sector, the story may change for the Indian Railways, too. In a sign of change to come, India has already sought investment from Japan to bring in high-speed bullet trains, as reported by Outlook.