What does it take to run a full train? Indian Railways are under the control of the central government which is the only provider of rail infrastructure and operations. Till now, the Railways have been vested with regulatory functions but that will soon change with the setting up of Rail Development Authority.
Limited private participation has largely been in infrastructure creation like private sidings, terminals and captive freight movement from pit head to project site. The operations, by law, are otherwise done by the Railways itself.
The government's latest move to allow private companies to run trains is not the first one being tried out. In January 2006, in order to promoted competition and break the monopoly of government-controlled Container Corporation of India, the Ministry of Railways allowed the entry of private and public sector operators to obtain licences for running container trains on the railways network.
As this was the first major attempt to get private companies, around 15 new entrants obtained licences to run container trains but the viability of the business is still in question and Concor continues to be the dominant player with 74 per cent market share.
Companies like Gateway Rail Freight, Arshiya Rail and APL Indialinx, Hind Terminals are in the market too but are largely marginal in business. Primarily, the haulage charges paid to the Railways make business difficult. Rail freight charges account for over 60 per cent operational costs for these operators.
The Railways expect cement, steel, auto, logistics, grains, chemicals and fertiliser companies to show interest in having their own fleet under the special freight train operations scheme of the railways. It expects 20-25 million tonne of additional freight volume to come through them.
In the passenger segment, private operators in the past have been selected for tourism trains but with freight, this did not take off.
Till now, private companies can book wagons and lease rakes to be run by the Railways. However, if the new scheme takes off, then the companies can carry freight on behalf of other customers too. Whether they are able to run the business unstrung from various regulations of the Indian Railways will be determined to a large extent by how the railway regulator evolves.
At the same time, with the investment climate yet to pick up, a correct assessment of enough cargo will be difficult, more for the new private players that do not have enough experience.
A track, a rake and other infrastructure may not be the only inputs in the business of running trains. There is a need to build a strategy to balance tariff and volumes in such a way that traffic does not shift to roads.