The deteriorating financial health of Indian Railways (IR) is reflected in the high operating ratio (OR), which means that working expenses are higher than traffic earnings. High ratio indicates poor ability to generate surplus and thereby a requirement for budgetary support.
The Comptroller and Accountant General’s (CAG’s) report shows IR’s OR was 114 per cent for 2019-20 against the budgeted 98 per cent. CAG reports take more than a year to come out and if we discount the Covid years of 2020-21 and 2021-22, this report does reflect the situation pretty accurately. The report commented that the declared OR of 98 per cent camouflaged the reality by excluding pension payments. At the same time, with IR’s capex mounting to ₹2.45-lakh crore in this year’s budget which has gone up five times since 2014, the long-term debts of IR have now topped ₹3-lakh crore.
IR, on the other hand, continues on its all-out modernising spree, with special stress on building its infrastructure. Such upbeat spend on infrastructure means the Centre believes that massive upgrade in rail infrastructure is needed for the country’s economy and viewing IR’s financial health in isolation is not important, per se.
But as IR spends on its infrastructure, it should keep its head above water. Passenger services would continue to be subsidised due to obvious political considerations so this necessitates some imaginative changes in the way it carries freight.
IR has a 26 per cent share of freight business with other modes having 74 per cent share, mainly dominated by roads. CAG also commented on IR’s over-dependence on coal movement, being 49 per cent of its commodity basket, and that any shift in bulk commodities pattern due to market conditions or technology could significantly affect its freight earnings.
Non-bulk cargo emphasis
The freight business is broadly divided into bulk and non-bulk cargo. IR’s focus has historically been on bulk commodities comprising coal, cement, fertiliser, petroleum products, foodgrains, and residual bulk raw materials required by industry. This approach has taken IR’s attention from non-bulk business which is nearly half of overall freight business today. While bulk freight has rail infrastructure at both origin and destination, or at least at production point, the same is not true for non-bulk traffic.
Non-bulk freight traffic comprises packages of perishables, consumer goods which need time-bound, door-to-door service, needing low inventory, employing multimodal services. These features of non-bulk traffic do not exist in IR’s ecosystem and, therefore, this cargo is not amenable for carriage by rail. However, non-bulk cargo yield per million tonnes is far better, approximately ₹200 crore vis-à-vis ₹100 crore for bulk cargo.
IR’s freight loading has increased roughly at the rate of 4 per cent per year, from 1,000 million tonnes in 2012-13 to 1,418 million tonnes in 2021-22, albeit with an exceptional but unsustainable increase of 100 million tonnes last year.
IR can make significant inroads in the non-bulk space by focussing on some special areas, viz:
Domestic container services for light cargo with equivalent dimension of double stack dwarf containers
Parcel business permitting high cube vans with superior containers viz. providing 10 cub m per tonne
Higher height automobile wagons with Dedicated Freight Corridor (DFC) height of 5.1 m compared to present 4.3 m for all automobiles
Roll-on-roll-off services with time-guarantee and competitive rates of container haulage benchmark
Low cost air-cooled vans for agriculture produce, including fisheries, dairy products, etc; and
Multimodal logistics parks, envisaged as Gati Shakti terminals in the Union Budget
Non-bulk cargo also needs wagon customisation different from wagon standardisation usually followed by the Railways. A beginning would, however, need to be made by IR for establishing proof of concept for high-cube container services embracing dimension of dwarf double stack, wide-bodied roll-on-roll-off wagons and high-cube parcel vans beating competition from road. Once these services take off, such wagons can be brought under private investment. This process was followed in the case of automobile wagons and they have found a considerable market. Non-bulk cargo also reduces un-remunerative empty running of freight trains as experienced with container trains which are charged on to and fro basis. RITES’s National Rail Plan study, commissioned in 2019-20, also indicates that IR’s growth must include transportation of non-bulk traffic.
This can be raised through steps in areas like raising average speed of freight trains to 50 kmph in next 20 years; gradual reduction in freight charges by 30 per cent to compete with road; customised wagons with height at DFC level for light parcel cargo, automobiles, container segment, etc. and; lowering of logistics cost by developing multimodal facilities.
These improvements can be developed around DFCs where time-guaranteed services can be introduced from FY23-24.
The time to act on these measures is now, else IR’s finances would keep slipping, rendering it dependent on government bail-out.
The writers are independent rail consultants