Not moving fast can derail the Railways

Raghu Dayal | Updated on February 07, 2021

Railways Changing tracks   -  BISWARANJAN ROUT

Capex has to be well executed, given the cost of borrowings. The salaries and pensions outgo is unsustainable

Faced with parlous finances prior to the pandemic outbreak, Indian Railways needs to seize the moment, adapt its mammoth, moribund apparatus to operate in a new paradigm amidst emerging competition, volatile customer demands, besides rapidly evolving technologies.

The Railways needs to first acknowledge it is indeed terminally sick. It has for long been living far beyond its means, a reality deftly camouflaged. For the last few years it drastically curtailed appropriation to DRF from ₹7,775 crore in 2014-15, to a meagre ₹400 crore in 2019-20, ₹200 crore in 2020-21, and provided for ₹800 crore in 2021-22.

The Budget 2021-22 documents give an inkling of the reality: “With required level to appropriation to Pension Fund from Railway Revenue in Actuals 2019-20 and in RE 2020-21, the Operating Ratio would be 114.19 per cent and 131.49 per cent respectively”.

While the lockdowns severely impacted its businesses, especially passenger, the problems have been simmering for years. It has been bailed out with a special loan of ₹79,398 crore from General Revenues for Covid related resource gap in the current year (2020-21), when its revenue from freight is expected to yield ₹1,24,184 crore against budgeted amount of ₹1,47,000 crore, and passenger segment garnering only ₹15,000 crore vs BE of ₹61,000 crore.

It is not that the Railways’ endemic ailment has not been diagnosed; but it has steadily spurned the suggested remedies. The Modi government’s first rail budget in 2014-15 had explained how Railways “is expected to earn like a commercial enterprise but serve like a welfare organisation”, how losses in passenger segment led to high freight rates, “resulting in freight traffic getting diverted consistently”, how “investments were misdirected” with “focus on sanctioning projects rather than completing them”.

The 2016 Rail Budget had outlined Railways’ journey of transformation, promising, by 2020, reserved accommodation on passenger trains available on demand, time-tabled freight trains, and average speed of freight trains raised to 50 km/h and Mail/Express trains to 80 km/h.

None of these promises and projects have been achieved. While average freight train speeds continue to be below 24 km/h, and of Mail and Express trains at 50 km/h, productivity of its assets has declined simultaneously with stagnant traffic throughput. Far below the budgeted freight and passenger levels before the Covid disruption, Railways recorded a paltry 2.2 per cent CAGR in freight loading in 5-year period 2014-15 to 2018-19. It could muster just 0.5 per cent CAGR in passenger journeys in the same period.

Highly publicised projects such as the Dedicated Freight Corridors (DFCs), station redevelopment, integrated logistics parks, and induction of new genre passenger trainsets are languishing.

Hailing Railways’ National Rail Plan “to create a ‘future ready’ railway system by 2030”, Sitharaman held out hope that it would help bring down industry’s logistics costs. The Plan’s ambitious goal to increase Railways’ share of total freight traffic from around 22 per cent to 45 per cent by 2030, is predicated on increasing capacity by building additional freight corridors and slashing freight rates by up to 30 per cent.

In the post pandemic world, maximising resource utilisation and accelerating asset velocity will be crucial, necessitating proactive maintenance and zero-failure infrastructure and equipment.

The Railways’ budgeted wage bill for 2021-22 at ₹93,676 crore and ₹54,000 crore for pensions, account for an unsustainable 70.8 per cent of working expenses. Contractual payments at ₹8,528 crore represent another 4.1 per cent of working expenses. Given the situation, the Railways’ move to recruit additional personnel beggars belief.

In the last few years, scarce resources have been spread thinly on scattered projects, providing little tangible relief on congested routes or terminals. Railways’ total capital expenditure has been ₹148,064 crore (Actual) in 2019-20, ₹161,692 crore (RE) in 2020-21.

For fiscal 2022, the amount budgeted is ₹2,15,058 crore, including ₹1,28,567 crore from extra budgetary sources. The Finance Minister has allocated ₹1,07,300 crore as budgetary support for capital expenditure (the BE ₹70,250 crore for 2020-21 revised to just ₹29,250 crore). Investment funds carry high cost owing to increasingly higher capex share through extra budgetary resources/market borrowings.

The writer is a former Managing Director, Container Corporation of India

Published on February 07, 2021

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