India seeking Private Railway Investment to fund Modernization and Capacity Addition face Union Opposition

Posted by PITHOCRATES - November 24th, 2012

Week in Review

India had an explosion of economic growth as they unleashed free market activity.  So much that their infrastructure is struggling to keep up with it.  Especially their railways (see Union Cabinet okays private sector investment in railways by Mahendra Kumar Singh posted 11/23/2012 on The Times of India).

Desperate to attract private investment in the cash-strapped railways, the Cabinet on Thursday cleared the state-run transporter’s plan to rope in the private sector for building new rail lines and plants, and augment capacity, a move that was red-flagged by the unions.

With the policy in place, the railways will be able to get the private sector to connect ports, mines and industrial plants with the rail network by allowing them to invest in laying the tracks for last-mile connectivity. The move is expected to lower the transportation cost and help evacuate minerals, coal and finished products from the production centres…

The move comes as the railways, in the absence of fare increase, has failed to generate resources for funding modernization, leave alone capacity addition despite successive rail ministers adding new trains to appease their constituency. In fact, it has repeatedly failed to meet the targets…

Even this time, the unions are opposing any attempt to hand over operation and maintenance to private players, which could deter investors looking to enter the BOT space for building new lines.

That’s a pity.  For it’s those operation and maintenance costs that consume the capital that they otherwise could use to fund modernization and capacity addition.

In the US there are two types of railways.  Those that make money.  And those that lose money.  Those that make money are privately owned.  Those that lose money are publicly owned.  Every subway, commuter train and Amtrak train loses money because of high operating and maintenance costs.  For the usual reasons.  High pay, pensions and health care costs for active workers and retirees.  While the heavy freight railways make money.  Despite their high operating and maintenance (all union) costs.  For there is no better alternative to moving heavy freight across land.  While every other way to move people (bicycle, motorcycle, car, bus, ship, plane, etc.) is a more cost efficient way to move people than by train.

The freight railways in the US are a modern marvel.  Moving so much freight that main line rails are like polished chrome.  While the best passenger train still pulls onto a siding to let a money making freight train pass.  Clearly showing who makes money.  And who doesn’t.  As well as the difference between a private sector union and a public sector union.  One has accountability.  The other doesn’t.  Customers moving freight have choice between rail shippers.  While people traveling by train have no choice.  The freight railroads have to be able to stay in business by being competitive.  While the passenger railways just keep raising fares.  Or beg for more taxpayer subsidies.  Which is why public sector workers don’t want to privatize their industries.  Because they don’t want to be accountable.  Or work within budgets.  Like everyone in the private sector does.  Including their union brethren in the private sector.  Who often don’t live as comfortably as their public sector brethren live.

If India is to continue her move into a free market economy she needs to privatize her freight railways.  Which could easily become and stay state of the art.  While biting the bullet on her passenger rail that probably will never make enough money to fund modernization or capacity addition.  But at least the money-making private railways can help bolster the economy.  Producing greater tax revenue for investment in the black hole that is passenger rail.

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