1. Indian Railways tracks expenses, not fares

Indian Railways tracks expenses, not fares

Facing the gloomy prospect of wiping out even the meagre annual surpluses and plunging into a deficit in FY17, Indian Railways has embarked on a plan to cut operational expenses...

By: and | New Delhi | Updated: January 19, 2016 7:25 AM
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According to official sources, Indian Railways expects to slash its electricity bill — an annual Rs 12,000 crore now — by about 20% in FY17 as nearly half of the procurement would be via the competitive bidding process introduced recently. (PTI/AP)

Facing the gloomy prospect of wiping out even the meagre annual surpluses and plunging into a deficit in FY17, Indian Railways has embarked on a plan to cut operational expenses and boost revenue without tariff increases.

According to official sources, the transporter expects to slash its electricity bill — an annual Rs 12,000 crore now — by about 20% in FY17 as nearly half of the procurement would be via the competitive bidding process introduced recently. It is also targeting a 15% reduction in total working expenses (TWE) next fiscal from the business-as-usual scenario, principally by attempts to optimise staff and fuel costs but without cutting essential transfers to depreciation and pension funds. This would mean the TWE next year would be roughly the same level as Rs 1.62 lakh crore estimated for this year.

Apart from these steps, the sources said, the railways would also try to boost “non-farebox revenue”. Though reconciled to the fact it would receive little help from the finance ministry to meet the additional expenses of about Rs 40,000 crore from the 7th Pay Commission, the transporter reckons it has little room to hike passenger or freight rates.

Gr4

The railways is losing traffic to other modes of transport even at the current rates — freight loading up to December-end this fiscal was more than 7% below the target for the period and passenger bookings saw a 5% shortfall.

“The railway minister is not keen on increasing passenger fares or freight tariffs… Our major focus now will be on generating revenue from (non-traffic) sources mainly advertising, parcel leasing, export of railway equipment and land monetisation. We also intend to cut working expenses in a meaningful manner,” said a senior railway official.

“The minister has instructed all the board members to formulate a plan and work on cutting (TWE) by 15%,” he added.

However, experts, including some within the government, feel that the railways will have no option but to hike tariffs, rationalise staff and trim allowances in the next budget if it wants to avoid its operating ratio (OR) exceeding 100% in FY17. Freight rates are said to be adjusted to fuel costs (which have been on the decline this year), but sources say that given the shortfall in revenues and the OR touching 97%, this policy hasn’t been followed promptly this year.

“With the IR having abundant land at its disposal, proper land monetisation can become a major source of revenue for the transporter,” said Abhay Krishna Agarwal, partner, infrastructure and public-private partnership at EY. “The e-commerce market is picking up and end-to-end operations on the parcel services front is another market where Indian Railways can make inroads. However, they will have go through the PPP route and collaborate with private companies if they want to provide door-to-door services,” he added.

A senior official said: “Staff rationalisation will take three-four years to have an impact. Logically, IR will have no option next fiscal except to increase passenger fares. Current fares do not cover the cost, especially for the ordinary classes. Politically it wont be easy to raise fares, though.”

Gr3

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  1. C
    catchpoint
    Jan 19, 2016 at 11:56 am
    silly. isn't this business 101 basics - rationalise cost, drive other income? what was the ministry doing last 1 year on this front with so many of the low hanging fruits on these issues? Prabhu a well meaning guy but may be this ministry is too big, too complicated and legacy entrenched for him. He is running out of ideas and time and he knows it. Panic before railway budget. he has nothing positive to show so dont make it worse by increasing fares but pull out some save face numbers by promises of cost control and other income.
    Reply
    1. A
      anil
      Jan 19, 2016 at 6:11 pm
      Railways must introduce double decker ac and non ac chair cars which are designed with comfort inind double decker ac four tier sleepers withbtwo riers on each deck. In order to compete with road traffic for shorter distances and with air traffic for longer distances the fares of these ac coaches shud be garibearh fares the ratioo of sleeper cl to these ac sleepers should be one to one and typically a 22 coach express shud have 7 garibearh ac coaches and 7 ordinary sleeper sofa it runs into profit In case of intercity day expresses double deckers will increase capacity and revenue for a 22 coach train there shud be 1o ii cl reserved double deckers and six ac double deckers Railways must use carrying capacity completely to increase revenue per train a
      Reply
      1. Jayasankar
        Jan 19, 2016 at 6:24 am
        It is going to be Tough Job for Mr.Prabhu to present Railway Budget. First Railway Ministry should bring down Corruption . Railway's has Militant Union Headed by People who are Equal to Late Datta Samant . In south there one such person. Recently a Honest Officer is shunted out on Pressure from Union for his upright action. Unless and other wise Railway Ministry Comes Down heavily on Union without fear and face the Threat, then Railways will improve. Thirdly Corrupt Higher Officials in the Railway. Minister must set up an enquiry Panel and take Action on them. Privatization of Railways is Must.
        Reply

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