The Indian Railways has seen its passenger revenues growing 65% from Rs 44,283 crore in 2015-16 to an estimated Rs 73,000 crore 2023-24, a growth rate that lagged nominal GDP growth (115%), and the growth in competing segments like aviation revenues during the 9-year period. The share of the passenger segment in the railways’ gross traffic revenues hovered in the range of 25-28% during the last decade, excluding the pandemic years when it understandably shrank to a trickle.
Of course, Indian Railways is expecting to earn Rs 106.67 per passenger in 2024-25, almost double the rate of Rs 54.62 in 2015-16. The passenger revenues haven’t grown commensurately because of a dip in passenger volumes. The number of railway passengers in FY24(RE) is estimated at 6.8 billion, much lower than in the pre-pandemic period (in FY19, the passenger volume was 8.43 billion).
A former railways official said that the rise in the per-passenger revenues can be attributed to the dynamic pricing mechanism of the Rajdhani trains coupled with the premium fares of semi-high speed Vande Bharat Express which were introduced in 2019.
There are 35 Vande Bharat operating at the moment. The Railways Board had slashed the fares of AC chair cars and executive classes on all trains, including Vande Bharat, by 25% in last July.
Amit Anwani, lead analyst (capital goods, industrials and defence) at brokerage Prabhudas Lilladher said: “We are expecting passenger segment to incrementally add more revenues as more rail lines are getting added each year,”
Despite the doubling of passenger revenues, railways continue to lose money in this segment. According to railways minister Ashwini Vaishnaw, if a ticket costs Re 1 to the railways, it’s only charging 45 paisa from the passengers. This is evident in the historically-poor operating ratio, a benchmark referring to the amount of money spent by railways to earn every Rs 100. The recent Interim Budget pegs the operating ratio at 98.22%.
As per a Comptroller and Auditor General of India (CAG) report tabled in Parliament in August 2023, there was a loss of Rs 68,269 crore in all types of passenger services in 2021022. All the profits that railways generated during that period had come from the freight segment which went into cross-subsidising the losses in the passenger services.
The freight revenues are estimated to grow by 55% between 2015-16 and 2024-25 (RS 1.69 trillion), at a lower rate than the passenger segment. The railaays continues to lose freight share which is just over a quarter now, although an internal target is to raise this to 45% by 2030.
Though the revenue from freight continues to account for a large chunk (64.63%) of the overall railways’ revenues are stagnant due to high competition from other modes – road, shipping, air and inland water transport. There has been muted muted growth in the average freight rates. For instance, the railways was charging Rs 991.43 per tonne in 2015-16. This is estimated to go up to Rs 1090.91 per tonne in 2024-25.
The railways offers the lowest logistics cost among all modes of transport but due to lack of flexibility, weak terminal infrastructure, high-transit time and poor last-mile connectivity, it’s losing the market share to other modes
With the implementation of Dedicated Freight Corridors (DFCs), which aims to bring down the cost of freight transport and improve logistics speed, railways is looking at snatching back some of the market share that it has lost to road transport over the years.
In the Interim Budget, the finance minister Nirmala Sitharaman announced the implementation of three major economic corridors to boost revenues for both passengers and freight segments. “On the freight side, the roads segment has been at the forefront of capturing the overall traffic. But things are likely to change when two dedicated freight corridors (1337-km Eastern Dedicated Freight Corridor and 1046-km Western Dedicated Freight Corridor) become fully operational,” said Anwani.