Operating ratio

Emotions run high in India when it comes to any tweak in railway fares. A revision in fares in 2012 cost the then-Railway Minister Dinesh Trivedi his job. The Modi government too got a taste of this when it was forced to roll back (partially) the recently announced hike. But it’s a fact that the Railways’ finances have been steadily deteriorating. No single metric captures this better than the operating ratio. You’ll hear it bandied about quite a bit today when the minister presents the rail budget.

What is it? The operating ratio is an indicator of how profitable the Railways are. It shows the Railways’ gross working expenses as a percentage of its gross revenues. For instance, an operating ratio of 90 per cent implies that the Railways spends 90 paise to earn a rupee. Or to put it differently, 90 per cent of the money earned by the Railways goes towards meeting its day-to-day expenses. So, the smaller the ratio, the better it is.

The Railways rakes in money largely from ferrying passengers and goods across the length and breadth of the country, with goods chipping in with a lion’s share. Expenses include high speed diesel and electricity costs, employee wages and repair and maintenance to keep the trains chugging. Money set aside for depreciation and pensions also adds to working expenses.

Now, except for a brief spell from 2005-06 to 2007-08, the operating ratio has consistently exceeded 90 per cent since 1997-98, thanks to fare revisions trailing far behind rising costs. In fact the best ever ratio achieved — 74.7 per cent — was way back in 1963-64.

Why is it important? With the Railways carrying over 8 billion passengers a year and ferrying several million tonnes of goods, it is critical that it remains viable and generates enough cash to maintain and modernise its coaches, tracks and signalling systems. A periodic revision of fares and keeping costs in check is crucial to bringing down the operating ratio.

But until very recently, successive governments have kept away from revising railway fares. Introduction of a fuel-adjustment component in fares during last year’s budget was a small positive step. Unless the operating ratio improves, the Railways can hardly spare any resources for upgrading infrastructure — modern safety systems and better amenities. A permanently cash-strapped Railways is an invitation to more accidents and mishaps. In the absence of a surplus, it has to rely on the Centre’s largesse.

Why should I care? Millions of us use trains for our daily commute as well as holiday travel. Even in the air-conditioned coaches, poorly maintained cabins, dirty upholstery and malfunctioning equipment are a problem. Then imagine the plight of those who have to rely on unreserved coaches or the sleeper class! The series of rail accidents involving badly maintained bridges and tracks and short circuiting electric systems also stress the need for stepped up investments in modernising the Railways. So, if you’d like to have a better travel experience, or even more importantly care for your safety, it’s important that the Railways generate a sufficient surplus.

The bottomline If the Railways doesn’t make enough money to cover costs, it will either raise its fares or demand funds from the Centre. Either way, it is you — the taxpayer — who is paying.

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