Urgent steps required to improve Railways’ finances

| Updated on December 09, 2019 Published on December 08, 2019

Railways’ inability to even incrementally raise passenger fares for long-distance as well as suburban services at regular intervals is the biggest impediment to revenue growth

The deterioration in the financial performance of the Indian Railways in 2017-18, to its worst officially recorded since 2000-01, is a result of the transporter’s inability to grow its revenues to match its ballooning expenses — or rather its inability to curtail expenses in the face of slowing revenue growth. The operating ratio for 2017-18 at 98.4 per cent, implies that the Railways spent ₹98.40 to earn ₹100 in revenues. The deterioration has been rapid after 2015-16 when the operating ratio was 90.5 per cent. The Comptroller and Auditor General of India (CAG) has reported it as the worst performance in a decade. Meanwhile, records show that the operating ratio had fallen to that level (98.3 per cent) in 2000-01. However, the two numbers are not entirely comparable, as the accounting methods followed by the Railways underwent some changes between 2005 and 2008. Even so, the situation is more precarious than the headline numbers suggest — the CAG noted in its report that the operating ratio may have printed at 102.7 per cent had the Railways not received advances from public sector enterprises NTPC and IRCON.

The inability of the Railways to even incrementally raise passenger fares for long-distance as well as the suburban services at regular intervals is the biggest impediment to the growth of its revenues. As a result, it loses money on all classes of passenger services other than AC-3 tier and AC chair car. The losses were the highest for classes that are used by the masses, such as the sleeper class, second class as well as for ordinary trains (trains that are not express/superfast, etc). The combined operational loss for sleeper class and second class was estimated at ₹19,300 crore, for the ordinary trains at ₹14,650 crore and for EMU sub-urban services at ₹5,300 crore. Suburban trains carry about 4.6 billion passengers in a year, with the average earning per passenger per kilometre of a little more than 18 paise. The long-distance trains carry about 3.6 billion passengers a year and the average earning per passenger per kilometre was estimated at about 44 paise. The rampant misuse of the concessional tickets, privilege passes and privilege ticket orders (PTOs) acts as a drain on revenues.

The Railways should improve its speed and efficiency at a time when air travel has emerged as a serious competitor. It needs to invest in modernisation and maintenance of rolling stock, addressing manpower shortages that can have safety repercussions. Developing and leasing Railways’ land in prime locations could help raise revenues. The Railways should emerge as the preferred mode of transportation across medium and long distances, owing to its energy efficiency compared to road and air. Its backward and forward linkages — economic and social — are unique. Lessons could be learnt from China’s rail success story.

Published on December 08, 2019
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