Opinion

Time Railways took the reform track

Raghu Dayal | Updated on February 20, 2019

With its finances not looking particularly good, the Railways must revamp its pricing and managerial models

Notwithstanding some initial glitches, the Railways’ avant garde semi-high speed Vande Bharat Express, code-named ‘Train 18’, heralds a new era of rail passenger services in the country, combining as it does functionality and aesthetics, speed with safety, and service with style. A bright spot amidst the encircling gloom around India’s railways, ‘T18’ may well propel the ailing behemoth to recover its strength and vigour, to be a legitimate leader in India’s logistics domain.

The table shows in a nutshell the fragile commercial and financial health of the Indian Railways (IR), the receding rate of growth in its freight and passenger businesses over the last 20 years (divided in four five-year periods), whereas its working expenses gallop far ahead of its revenue receipts.

Bare facts

The Railways’ freight and passenger businesses over the five-year period 2014-15 to 2018-19 (RE) indicate flat growth. The number of total passenger journeys recorded a CAGR of 0.31 per cent, passenger kilometres 0.55 per cent, and freight output in terms of net tonne kilometres (NTKM) 0.24 per cent. Whereas its gross revenue receipts over the period show a CAGR of 4.09 per cent, its working expenses a CAGR of 5.54 per cent.

IR witnessed a steady decline in the annualised growth of freight business over the last three Five-Year Plans — Tenth Plan (2002-07), Eleventh Plan (2007-12), and Twelfth Plan (2012-17) — when growth in freight uplift was 8.12 per cent, 5,89 per cent, and 2.68 per cent, respectively, and NTKM 7.62 per cent, 6.78 per cent, and (-) 1.46 per cent. Competition the rail freight sector faces is formidable. The 96,000 km of highways that carries 40 per cent of country’s road traffic is being expanded to 200,000 km with capacity to carry 80 per cent of goods traffic.

 

The Railways has to reorient and re-dimension its freight transportation strategy. Long distance rail haulage of coal will keep diminishing, compelling IR to look for life beyond coal, currently accounting for half of its total freight business. With its vision key-holed on bulk commodities, IR has, for example, less than 2 per cent share in the FMCG segment, and 1 per cent in auto and textiles. It needs to improve its product and calibrate its services to create critical mass of piecemeal wagons/containers, in partnership with other players, for time-tabled, end-to-end multi-modal logistics services.

Freight vs passenger

Saddled with the crushing weight of passenger cross-subsidisation, the Railways has out-priced itself in the vital freight sector. For example, hauling a passenger train for one km cost ₹1,223.04 in 2016-17, and resulted in a net loss of ₹489.01. And, hauling a freight train cost ₹1,661.82 per km, it brought in net earning of ₹1,187.28. Over two-thirds of its infrastructure and other resources are deployed for the passenger business segment but it yields only one-third of IR’s total revenues; the ratio in the case of freight business is the other way round.

For passenger business too, IR faces competition not only from budget airlines but also new style, high-capacity buses and cars. ‘The Economic Survey’ explained how railway passenger business declined by an average 0.26 per cent every year in the five years ending 2016-17, whereas the number of domestic air passengers increased 10 per cent annually. Lately too, IR’s passenger ridership has almost been stagnant — increasing by just 0.8 per cent, from 8,286 million in 2017-18 to 8,354 million in 2018-19, and projected to record a paltry 0.9 per cent increase in the next fiscal (2019-20), to 8,428 million.

In spite of some sporadic launches of new brands, such as Tejas, Humsafar, Antyodaya and Uday, there has been little concerted strategy to expand, accelerate and modernise its passenger business, including pre-board and on-board services.

The Railways’ warped pricing structure needs to be immediately addressed. The second class ordinary train journeys constituted 78.6 per cent of its total passenger traffic in 2016-17, yielding just 16.7 per cent of total passenger earnings. Non-suburban commuters utilising season ticket concessions for up to 150 km travel constituted 22.8 per cent of the total non-suburban passenger traffic, but earned only 1.2 per cent of revenue.

Narrowing fare gap between airlines and railways has been a catalyst for the rising shift to airlines. IR must not out-price itself in the “upper class” segment, that is, AC-2 and AC-3 tiers. The ‘upper class’ travel constituted a minuscule 1.85 per cent of all its passenger journeys (in 2016-17), but contributed as much as 32.33 per cent of the total passenger earnings.

Again, IR operates a daily average of over 13,300 passenger trains — including about 3,500 long distance inter-city mail and express services, 4,700 short distance ‘regional’ trains, besides around 5,100 suburban ‘locals’, mostly in Mumbai and Kolkata. The regional services contribute the maximum loss in passenger business and consume substantial movement capacity. An autonomous corporate entity, under the IR umbrella, will help coordinate better with respective State government authorities and provide for multi-modal transport, especially where rail services make no sense, economically and rationally.

The Railways has to grapple with managerial and operational aspects. Segregation of its passenger and freight businesses will help. IR must perform as a corporate entity with customer-orientation. IR’s wage bill keeps ballooning: it doubled in just ten years in relation to revenue — from 35 per cent in 2007-08 to 70 per cent in 2016-17.

It needs to prune its headcount, more so in the context of substantial induction of newer technologies at high costs and outsourcing of myriad activities and services. Instead, it has been vainly hiring very large numbers, including in unskilled categories.

IR’s management structure has been compartmentalised, leading to departmental empire-building. It would be prudent to streamline the traditional four-tiered organisation into a three-tiered system, as Chinese Railways did in 2005.

The writer is a former CMD of Concor.

Published on February 20, 2019

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