Better passenger services? High time Indian Railways starts reducing subsidies; private trains a welcome step

By: |
Published: February 11, 2020 12:14:13 PM

Part of the problem will, undoubtedly, get fixed by the end of next year, when the dedicated freight corridor is fully operational, since the Railways will then be able to offer faster freight turnaround, and can also lower freight rates.

And, even this ratio may not be accurate since certain expenses are kept out; there have been no dividend payouts by the Railways for several years now, and the contribution to the depreciation reserve fund has also been falling.And, even this ratio may not be accurate since certain expenses are kept out; there have been no dividend payouts by the Railways for several years now, and the contribution to the depreciation reserve fund has also been falling.

If the Rs 55,000 crore that the Railways lost in passenger subsidies in FY20 wasn’t bad enough—Railway Minister Piyush Goyal gave the number in Parliament recently—this is roughly equal to the amount the national carrier collects from passengers across the country. In other words, on average, the level of subsidy on railway tickets is as high as 50%. Hardly surprising, then, that the Railways are in poor financial shape; the all-critical operating ratio—very broadly, the operating expenses divided by revenues—has continued to deteriorate, from 91.25 in FY15 to 97.4 in FY20; indeed, the FY20 budget target was 95%. With operating expenses eating up almost all the revenues, the Railways has little left to invest. And, even this ratio may not be accurate since certain expenses are kept out; there have been no dividend payouts by the Railways for several years now, and the contribution to the depreciation reserve fund has also been falling. In FY18, the CAG had calculated the actual operating ratio to be well over 100.

A study by Debroy/Desai for FY15 had pointed out that, on an aggregate level, while buses charge Rs 1.78 per km for AC travel, trains charge a much higher Rs 2.52; on the other hand, in the Delhi-Lucknow segment, second-class train fare is Rs 185 versus a staggering Rs 420 by bus. In other words, the Railways is in danger of losing upper-end passenger travel by charging too much while it charges too little for the lower classes. Another way to calculate this is to examine how much of the Railways resources are taken up by various types of travel and how much of revenues comes from these. AC first class travel is around 0.2% of total passenger traffic (in km), but 5.4% of revenues come from here. Ordinary second class travel is around 21.3% of the total traffic, but accounts for just 10.4% of revenues. Not only do such large subsidies make the Railways unviable, they force it to over-charge on freight revenue by Rs 35,000-40,000 crore or so if you divide the expenditure equally into freight and passenger operations; this, in turn, has resulted in the Railways increasingly losing freight traffic to road operations.

Part of the problem will, undoubtedly, get fixed by the end of next year, when the dedicated freight corridor is fully operational, since the Railways will then be able to offer faster freight turnaround, and can also lower freight rates. Indeed, once the corridor is working and freight trains mainly move on it, even passenger trains can move faster and, possibly, even start charging more. It is equally heartening that Railways are moving faster on introducing private trains; Tejas is a private train, but not a full-fledged once since it is being run by IRCTC. Fully private trains are unlikely to take off till the Railway Regulator is in place and is seen to function in a genuinely autonomous manner. And for that to happen, it is critical that Railway accounting be modernised; for some reason, the results of the pilot projects on accounting have not been made public, nor is it clear by when all accounts will be prepared in this manner. If the country’s largest transporter has to truly flourish and have enough money to be able to deliver better—and safer—services, it simply has to start reducing subsidies in a less gradual manner than has been done so far.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Next Stories
1Wow! Indian Railways Vijayawada station gets highest capacity Cover-Over-Platform solar plant
2India-Bangladesh railway link: North-east infrastructure to get a boost! Project to be ready by 2021
3Indian Railways fare hike of little help? 4 paisa per km fair hike to compensate 5% of Rs 55,000 crore loss