Transform Indian Railways into a Competitive Rail System

Indian Railways is one of the world’s largest railway systems, but it combines several fundamentally different functions within one government organization: passenger services, freight operations, tracks, signaling, stations, maintenance and major capital investment.

This structure makes accountability difficult. It is hard to clearly determine the financial performance of individual railway businesses, hold management accountable for service quality, or introduce meaningful competition.

Passengers and businesses also have limited choice. Unlike aviation, where multiple airlines can compete while using common airports and air-traffic infrastructure, India’s railway network is overwhelmingly operated by a single government organization.

The government has an important role in protecting strategic railway corridors, ensuring safety, and providing connectivity. But the government does not need to own the companies that operate trains.

India should separate ownership of strategic national assets, management of railway infrastructure, regulation and operation of railway services.

Restructure Indian Railways and progressively move the government out of the commercial business of operating trains.

First, divide existing passenger and freight operations into independent companies with professional boards, separate management, clearly allocated assets, and independently audited financial statements.

The Government of India should then progressively sell its ownership in these operating companies through India’s public stock markets, ultimately allowing them to become fully investor-owned companies.

India’s railway corridors and rights-of-way, however, should remain permanent national assets and should not be sold.

A separate National Rail Infrastructure Company should operate, maintain, modernize, and expand the common railway infrastructure—including tracks, signaling, and stations—under a long-term national mandate. The infrastructure company could be publicly traded and professionally managed, while the nation retains ownership of the underlying railway corridors and rights-of-way.

India should then open the railway network to competition.

Qualified companies should be permitted to establish their own passenger and freight services, purchase or lease trains, develop routes and compete for customers. Operators would pay transparent track-access, station and infrastructure fees, similar in principle to airlines paying to use airports and common aviation infrastructure.

An independent rail regulator should oversee safety, infrastructure pricing and fair competition. Track and station capacity should be allocated transparently so that the infrastructure company or established operators cannot prevent new competitors from entering attractive routes.

Where a railway route is socially important but commercially unviable, the government should transparently contract with competing operators to provide the service and disclose the subsidy rather than hiding the cost through cross-subsidization.

India would not be the first country to move a massive government railway toward commercially accountable companies.

Japan provides one of the most relevant examples. In 1987, the heavily indebted Japanese National Railways was restructured into six regional passenger companies, a nationwide freight company and other specialized entities. Over the following decades, several of the major passenger companies—including JR East, JR Central and JR West—were progressively privatized, with government ownership ultimately eliminated.

Japan’s experience demonstrates that a huge government railway can be broken into focused companies with clearer management responsibility and financial accountability while continuing to provide an extensive national railway service.

India can build on Japan’s experience while introducing an additional element: competition over common railway infrastructure.

European railway reforms provide experience with this part of the model. Rail infrastructure and train operations have increasingly been separated, with qualified railway companies able to obtain regulated access to common infrastructure. This demonstrates that tracks do not necessarily have to belong to the company operating the trains.

India can therefore combine the strongest elements of both approaches: Japan’s restructuring and progressive privatization of a large government railway, and Europe’s experience allowing competing operators to use common railway infrastructure.

Competition would give passengers and freight customers greater choice while forcing operators to compete on price, reliability, frequency, comfort and customer service. Separating the infrastructure company would give it a clear responsibility: maintain and expand a safe, efficient railway network available fairly to all qualified operators.

The government’s role would also become clearer: protect strategic railway corridors, establish the rules, regulate safety and competition, and ensure essential connectivity—not operate trains.

The government should protect the railway network and regulate the rules. Companies should compete to run the trains.