Indian Railways (IR) reported an operating ratio (OR) of 97 in 2016-17, the worst in the past 16 years. However, a closer look at the transporter’s finances show 10 of IR’s 17 zones are making profits while others, all of which witness heavy passenger traffic, more than offset the gains.
OR denotes how many paise IR spends to earn a rupee; so a lower OR would mean it has more surplus to invest in expansion and modernisation. For several decades, IR hardly produced enough surplus from its operations. So, even after resorting to funds from the central Budget, its investments have been far below par.
“Since the passenger segment is heavily subsidised by the freight revenue, the zones witnessing high passenger traffic will have high OR too — for instance, the North-Eastern Zone, as there is no freight movement there,” said VN Mathur, former member (traffic), Railway Board. In 2015-16, North-Eastern Railway registered an OR of 196.72 while the transporter’s overall ratio was 90.5.
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Indian Railways booked 4,569.80 million passengers in 2016-17 on an originating basis.
Dense passenger traffic entails a large number of staff to man the operations, which in turn leads to high staff cost — the main reason for poor operating ratios. And this to a certain extent is a global phenomenon. For instance, Burlington Northern Santa Fe (BNSF), one of the leading freight railroad networks in North America operating on 36,000 km route length compared with IR’s 65,000 km, registers an OR between 65 and 70. BNSF, which doesn’t carry passengers, employs just 44,000 people whereas the staff strength of the Indian Railways is 1.3 million. However, Amtrak, another railway entity in the US, which operates a passenger business, reported an OR of 94% in 2015-16.
Closer home, East Coast Railway’s OR for 2015-16 was 50.56, as it witnesses less passenger traffic and has low employee count. According to R Sivadasan, former financial commissioner at IR, East Coast is a newly carved out zone (formed in 2003) where earnings related to freight from mining activities is high. Sivadasan added that old employs prefer to stay back in the old zones rather than moving to the new ones. “Passenger business is subsidised across the world and very few countries such as France, Japan and Germany make marginal profit from passenger railway operations,” Sivadasan added.
Some IR zones which have higher freight loading along with heavy passenger movement also suffer because of the way freight earnings are apportioned. For instance, Eastern Railway, where freight loading is high from coal-bearing areas. However, according to Mathur, the revenue from Howrah-New Delhi freight will be shared by all three railway zones it crosses. Eastern Railway reported an OR of 180.6 in 2015-16. In fact, Metro Railway, Kolkata, which only operates in the passenger segment, had an OR of as high as 237.8 in 2015-16.
The annual cross-subsidy for the passenger segment, despite some efforts in recent years to cut it, hovers around Rs 30,000 crore now.