How Privatisation Of Indian Railways Could Impact Real Estate

Since Independence, the vehicles on the road have changed remarkably. Today, drive is far more comfortable and smooth. Vehicles are more visually appealing. The economic argument, of course, is that when vehicles are privately produced, there will be greater competition, innovation and efficiency. In contrast, India's publicly run trains and railway networks have not changed much. 

But, this might soon change, if recommendations from a committee chaired by eminent economist Bibek Debroy are to be implemented. The committee led by Debroy has proposed that there should be greater liberalization in India's railways sector, with more participation from private players and foreign investors. The committee was formed by the Union Ministry of Railways to suggest a roadmap for restructuring Indian Railways. The Debroy committee wants private players to run passenger and freight trains, and produce coaches, wagons and locomotives. The committee also wants commercial accounting of railway functions.

The cost of a publicly run railway network is enormous. Such cost is also intimately connected to real estate in India. Let me explain. Every day, nine people die on the Mumbai suburban railway network while accessing India's most prosperous city. They would perhaps have been alive if they could afford valuable real estate in Mumbai. But, the city has the most stringent building height restrictions in the world - in congested Mumbai, there are greater limits to the number of floors developers can add to their residential projects than in large global cities. So, those who can not afford expensive apartments in the heart of Mumbai live far and hang precariously on the trains to reach workplaces in Mumbai.

How can a privatized railroad network and trains help?

Trains allow people to travel in time to offices, markets, hospitals and other amenities when they live far away. The barriers to someone who lives in a suburb and travels to the city center are time and money. The distance and cost become less relevant when they have greater proximity to other parts of the city or the country at a lower cost. But, in India, merely 5% of the population owns cars. If Indian railways are privately run, corporations that run railroad networks can raise money through debt and equity markets to meet the rising demands of people and organizations.

With private railways, the infrastructure and trains would, thus, not be ancient, congested and poorly maintained. With greater efficiency and competition, commuting costs would fall too. When private railways compete, innovate and terminate unprofitable routes, it tends to free up much useful real estate too. This also leads to more efficient use of real estate everywhere else, and decongests cities.

In government-run railway network, constraints on political decision making and the budgeting process are much greater. Mumbai's railway network has 289 miles of tracks that carry over 7.5 million passengers every day. But New York City subway system has 656 miles of track that carry 4.8 million passengers every day. It is not merely that the load is 60% higher on Mumbai's railroad network. The infrastructure is not vast enough to meet the needs of people and the industrial and commercial establishments in Mumbai.

The Debroy committee, however, did not use the word privatization because in India, it often bears negative connotation. Railways may not be entirely privatized anytime soon.