The aim of the Indian Railways to reduce its expenditure may remain a distant dream if the zonal railways continue to spend at the current pace. According to data available till April 2010, majority of zonal railways spent more than they earned. In the case of Frontier Railway, the ratio of expenditure to earnings is more than 250%?which means it spent more than double of what was earned in April.
The expenditure to earnings ratio, or operating ratio, has increased even after the Indian Railways instructed all zonal railways to plan their expenditures such that they do not exceed the income. Indian Railways wants to reduce this ratio to 92.3% in 2010-11 against 94.7% in the previous year. The ratio has been going up since 2008-09, after a good spell of three years starting from 2004-05.
Observers say the increase in operating ratio could be due to the pay hike in 2008-09, general inflation and increase in fuel prices. ?The increase in operating ratio is mainly due to the rise in material cost, the Sixth Pay
Commission and the increase in diesel prices. The overall establishment cost has gone up. The railways can control only some expenditures like traveling allowance, but it would not make a significant difference as they account for a very small portion in the overall establishment cost,? ex-financial commissioner for railways Vijayalakshmi Viswanathan told FE.
The prices of steel and iron, which are used in manufacturing wagons, wheels and rails, rose in April 2010. The prices of steel alone rose by Rs 2,500 per tonne across companies. The country?s largest iron ore producer, NMDC, also said in the same month that prices could further increase by up to 50%.
Railways had provided Rs 7,190 crore in 2009-10 to meet the mandatory liabilities of salaries and allowances against a higher requirement. For pension obligations the entity paid Rs 15,000 crore. ?Some part of the hike is accounted for during the current year,? said another former official of railways.
The government had increased the price of diesel from Rs 35.47 a litre to Rs 38.10 on April 1, 2010. Railways spends around Rs 4,500 crore per annum on diesel fuel and the cost goes up with every rupee increase in the price of the fuel. The cost will rise further this year as the government raised the price of diesel by Rs 2 a litre last week. Fuel accounts for 17% of the expenditure, while staff wages and allowances exhaust 34% of the funds.
While the costs have sky-rocketed due to expenses on fuel and pay revision, the Railways has not raised freight rate by the same margin. Passenger fares have not been changed at least in last seven years. ?The Railways had told the Planning Commission that it will link the fares to variable costs, but so far it has not happened. If the Railways does not do it now, its operating ratio will go further up,? a former member of railways board said.
Experts say the only way Railways can increase its earnings is by attracting a higher freight traffic. Goods traffic contributes 66% of the total earnings of the national transporter. During April-May 2010, Railways earned Rs 10,044.54 crore from freight traffic, compared to Rs 9,216.12 crore in the corresponding period last year, registering an increase of 8.99%. It carried 146.41 million tonne (mt) of freight traffic during the period, 3.37% more than a year ago. Railways expects to increase freight loading to 944 mt this fiscal against 888 mt in 2009-10.
