NEW DELHI -- Indian Railway Catering and Tourism Corp., the nation's biggest e-commerce platform with sales of 550,000 tickets each day, is among 11 state enterprises cleared for partial privatization.
The cabinet committee for economic affairs chaired by Prime Minister Narendra Modi approved on Wednesday IRCTC and 10 other state-owned companies for listing of up to 25% of their stock.
Other companies involved in railways also given the nod were Indian Railway Finance; Ircon International, a construction company; Rail Vikas Nigam, a transport infrastructure provider; and RITES, an engineering consultancy. The six other state enterprises that won cabinet approval are in defense, power, and metals.
India's first railway line was built in 1853 in the British colonial era. Today's network employs over 1.3 million people, and runs 12,000 trains each day with 23 million passengers. Another 7,000 freight trains haul 3 million tons daily. The system is run by the Ministry of Railways, but it has an enormous mountain to scale in terms of upgrading infrastructure, providing customer satisfaction, and introducing new technology.
At present, India's railways are losing some 340 billion rupees ($5.28 billion) each year, in part because of subsidies to seniors and others. Though crowded, Indian trains are an extremely inexpensive travel option. The cheapest ticket for a reserved seat on the 999km journey from New Delhi to Patna in the eastern state of Bihar is just 500 rupees ($7.77).
The main objective of listing is to reduce dependence on the government for raising capital. IRCTC was incorporated in 1999 to upgrade and professionalize the hospitality services on Indian trains. Online ticketing has been generating over 40% of its revenue. Its other earners are catering, tourism, and drinking water.
IRCTC started online ticket sales in 2002 -- ahead of any local airlines -- and accounts for 60% of all railway tickets booked ahead. In 2012, it began offering airline bookings as well.
Unlike Indian Railways, IRCTC has been profitable in almost all its business segments, and has been valued at $3.5 billion by Moneycontrol, a financial portal. Indeed, it is profitable unlike most other Indian e-commerce companies -- including Flipkart, the biggest online retailer.
In the financial year that ended in March 2016, IRCTC's total income of 15.05 billion rupees was up from 11.41 billion rupees the previous year, showing growth of 32%. Profit after tax was up 44% at 1.9 billion rupees.
A recent parliamentary report noted IRCTC initiatives in travel insurance, air packages, bookings through mobile e-wallets, water vending machines, and more. Ventures in the pipeline include non-railway catering, event management, and executive lounges.
However, in the budget that came into effect this month, the government announced that the service charge on e-bookings would be scrapped. It had been suspended when high-value banknotes were demonetized in November.
Six years ago, only 97 million tickets were booked online. By 2015, the figure was nearly double at 183 million. IRCTC had been charging 20 rupees for booking ordinary tickets and 40 rupees for seats with air-conditioning. As it heads for partial privatization, a new business model will be needed to plug a revenue gap likely to amount to about 5 billion rupees.
Modalities for all the privatizations will be overseen by a group of ministers headed by Finance Minister Arun Jaitley. A discount of up to 5% on the issue price has already been approved for retail investors and eligible employees of the companies involved, according to an official statement.
The state divestment policy announced last year requires unlisted state enterprises with no accumulated losses and three consecutive years in profit to be privatized by 25%.
This financial year, the government hopes to generate 725 billion rupees from its divestments. Of this, 465 billion rupees will come from selling minority stakes in state enterprises; 150 billion rupees from divesting larger shareholdings in state enterprises; and 110 billion rupees from listing five state-owned insurance companies.
"Listing of public sector enterprises will foster greater public accountability and unlock the true value of these companies," Jaitley had said in his budget speech on Feb. 1.