Railways’ Report Card: Indian Railways chugging along Air India path?

India can well do without an Air India; Indian Railways is far too important, precious and strategic for the nation to be allowed to become a burden on the economy

indian railways, air india, indian economy, CAGR, UDAN, indian economy, Economic Survey, China Railway, ETCS 2
IR has to drastically improve its product; look at the entire supply chain end-to-end.

Our railways’ commercial and financial health looks worrisome. With the economy registering a tepid 6.5-7.5% annual growth, the transport sector, as a rule, needs to grow by around 10%. Instead of optimally increasing its share in the nation’s freight and passenger market as stoutly recommended by recent expert committees, the Indian Railways (IR) keeps further losing even its low share. Its freight and passenger businesses over the five-year period 2014-15 to 2018-19 (budgeted) indicate plain flat growth—the number of total passenger journeys recorded a CAGR of 0.22%, passenger kilometres 0.16%, and freight output in terms of net tonne kilometres 0.02%.

Whereas IR’s gross revenue receipts show a CAGR of 4.55%, its working expenses a CAGR of 5.46%—a 20% higher CAGR of expenses than revenues over the five-year period. Its management needs to heed to Charles Dickens’s fictional character Wilkins Micawber’s sage advice: “Annual income twenty pounds, and expenditure nineteen and six, result happiness. Annual income twenty pounds, and expenditure twenty pounds ought and six, result misery.”

The future looks dangerous. Consistent with structural changes emerging in freight market worldwide, long-distance rail haulage of coal will keep diminishing, compelling IR to look for life beyond coal, currently accounting for half of its total freight business. Competition from roads for rail freight intensifies. The 96,000-km highway length that carries 40% of India’s road traffic is being expanded to 2,00,000 km with a capacity to carry 80% of the country’s goods traffic. Trucks will clock much higher mobility, further facilitated by the GST regime.

IR has to drastically improve its product; look at the entire supply chain end-to-end. IR has had its vision key-holed on bulk commodities. For weaning away high-value non-bulk sector from roads, IR needs to create a critical mass of piecemeal wagons/containers, in partnership with other players, for timetabled, multimodal, integrated logistics services.

IR’s passenger business, too, is under siege. The Economic Survey noted how railway passenger business declined by an average of 0.26% every year in the five years ending 2016-17, while the number of domestic air passengers rose 10% annually. The narrowing fare gap between airlines and railways has been a catalyst for the switch from trains to aircraft. UDAN, the regional air connectivity scheme, has planned to expand airport capacity more than five times to handle a billion airline trips per year, and soon surpass the total number of upper class rail travellers.

IR has to aim at high-capacity, speedy, intercity passenger trains for making a perceptible difference, also in pre-board facilities—hassle-free booking, clean station platforms, coaches and toilets, standardised packaged food, trains running on time, and so on. Lately, IR has talked of Tejas, Humsafar, Antyodaya, Uday, etc, as its new pantheon of passenger services. It has to fast-forward the much delayed semi-high-speed train project progressively on popular corridors. It could well earn considerable goodwill by being a bit bold and innovative in extending reserved accommodation on demand, particularly for lower class travel on some popular under-served routes.

Of its daily average of 13,300 passenger trains, 4,700 short distance stopping “regional” trains, including those serving towns by ferrying commuters to/from expanding cities and metros, contribute the maximum loss in passenger business and consume a large portion of scarce movement capacity. IR may well arrange for these “regional” services to be managed by an autonomous CONCOR-like corporate entity, coordinating with state government authorities and provide for road services where rail services make no sense, economically and rationally.
Railways traverses a facile, though perilous, route—often hiking freight charges and upper class, mostly AC, passenger fares. With low-cost air carriers looming large, it has little room for raising AC train fares.

As it is, IR’s upper class travel constitutes a minuscule 1.85% of all its passenger journeys (in 2016-17), and 9.6% of total passenger km, but 32.33% of its total passenger earnings. The second class ordinary train journeys in 2016-17 constituted 78.6% of IR’s total traffic, but yielded a paltry 16.7% of total passenger earnings. Non-suburban commuters availing of season ticket concessions for up to 150 km travel constitute 22.8% of total non-suburban passenger traffic, but yield only 1.2% of earnings.

India’s most important enterprise, IR, for long, is stuck at 1% of national GDP; its potential and economy’s expectations require it to aim at 2% of GDP, a tough call in a growing economy. There is no magic bullet. A rigid bureaucratic structure is antithetical to business ethos. IR needs to shed its widely, and mistakenly, perceived role of a departmental undertaking with public service obligation and, instead, perform as a corporate entity to carry the nation’s freight and passengers adequately, efficiently and economically. There are ministries and programmes to look after social obligations, for which they have their own budgets.

As futuristic and costly plans and projects for “bullet” trains, hyperloop, new-age ETCS 2 signalling, and the questionable network-wide “total electrification” may remain on the radar, IR’s immediate, unrelenting focus has to be on (1) capacity creation on arterial corridors and freight and passenger terminals; (2) cutting costs; and (3) transforming its organisation and services. While FY19 Budget, no doubt, earmarked a large part of the capital expenditure for double, triple and quadruple tracking and gauge conversion projects, the two most important capacity-enhancing freight corridors—the ongoing Ludhiana-Dankuni and Mumbai-Dadri—have somehow not been furiously fast-tracked.

Amidst lacklustre business turnover and revenue stream, IR’s expenditure keeps increasing. No endeavour, howsoever intense, to improve balance sheet top line must let the guard be lowered to cut costs, optimise economies, and eliminate flab and waste. The wage bill keeps ballooning: IR’s wage bill in just 10 years doubled in relation to its revenues—from 35% in 2007-08 (wage bill Rs 25,892 crore versus revenue Rs 73,277 crore) to 70% in 2016-17 (wage bill Rs 1,15,271 crore; revenue Rs 1,65,382 crore). Instead of the number of employees being pruned, especially in the context of substantial induction of newer technologies at high cost and outsourcing of myriad activities and services, IR has instead been splashing its “biggest recruitment exercise” to hire 1,10,000 employees, a large number of them in category D.

IR’s management structure has, inter alia, been compartmentalised, leading to departmental empire-building, rendering it perilously obese and extortionist. The recent rail expert committee found that “IR’s efficiency was better with nine zones than with 16.” Today, with an emphasis on IT-enabled flat management structures facilitating quick decision-making and efficient delivery, it may be prudent to streamline the traditional four-tiered organisation into a three-tiered system, as China Railway did in 2005, by abolishing its 44 sub-regional entities, equivalent of IR’s divisions.

IR needs to deftly, and firmly, handle the secateurs, first in the Kafkaesque Rail Bhavan, then right across the sprawling system—its vast web of installations—of 45 POH (periodic overhaul) workshops, 100 locomotive sheds, 260 repair depots and “sick lines”, stations and yards, colonies and offices, and its 65,000-strong protection force. It’s not IR’s business to run schools, hospitals or kitchens, printing presses or garment stitching. Some “empires” contrive to survive, for example the mammoth 23,500-strong construction organisation—even its over-6,000 “work-charged” officers’ posts well after the projects were completed.

Amidst surging interest in “dynamic disequilibrium” as the economy’s only stable state, it enjoins upon IR’s apex management to urgently put it on a firm trajectory to regain its optimal share in India’s freight and passenger market, reorient its ethos, and streamline the apparatus in a spirit of an innovator’s “creative destruction”. IR’s health is indeed grim. One cannot escape chaos by refusing to look at it. Any allusion, howsoever far-fetched at the moment, made to IR going the ailing Air India way is ominous. India can well do without an Air India; IR is far too important, precious and strategic for the nation, to be allowed to become a burden on the economy.

Author is Senior fellow, Asian Institute of Transport Development, New Delhi. Views are personal

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