India’s economy is growing fast, and the creation of an efficient transportation system is essential to sustain that growth. India’s national railroad will therefore have to meet the rapid acceleration of the demands of the country’s industry and freight customers for reliability and service. The railroad must transform itself from a lumbering government monopoly into a more efficient, customer-focused organization—and the best way to do so may be restructuring rather than privatization.

The scale of the Indian government’s challenge is as huge as the country itself. Indian Railways, running for nearly 150 years, is one of the world’s biggest railroads by such measures as passengers and freight carried (Exhibit 1). It has a giant public-service obligation: in India, trains are the most common mode of long-distance transport, running almost everywhere, including some of the country’s poorest and most remote regions (Exhibit 2). The Indian Railways workforce of 1.6 million makes it the largest employer in India. But while the country’s gross domestic product is growing by 5 to 7 percent a year, Indian Railways is growing by only 3 percent. Worker productivity (measured by traffic units per employee) is lower than that of the railway systems of several other...