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.
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.”