As passengers continue to choose other modes of transport over the Indian Railways and haulage of most commodities except coal decline or remain flat, the state of India’s largest transporter and its finances continue to be precarious. The IR has been falling short of its own revenue targets for many years now as it spends nearly all that it earns and continues to depend on extra-budgetary resources to meet its financing requirements. In the second year after the Rail Budget was merged with the Union Budget, rising expenses and not enough increase in revenues continues to define the IR. The operating ratio – which measures how much of a rupee is spent to earn that rupee – has crossed the 100 per cent mark some moths back and is expected to be the highest ever by the end of the fiscal.
So IR’s finances continue to cause worry. Between April 1 and October 20 this fiscal, the only bright spots were passengers who travel on reserved tickets and increased loading of coal – both these factors helped the IR increase total gross earnings by almost 9 per cent year-on-year. In this 203-day period of 2018-19, gross earnings jumped by almost Rs 39 crore each day, on an average.
But a closer look at the traffic patterns and earnings shows why there is a lot to worry despite the increased earnings. First, the increase still did not fulfill the earnings’ target the IR had set itself at the beginning of 2018-19. In the first six months of the fiscal (April 1 to September 30), gross earnings fell short by almost Rs 24 crore daily, on an average. The IR has not provided the difference between the target and the gross earnings for the first 20 days of October. And the daily shortfall of Rs 24 crore is correct if we take the IR’s gross earnings while also including coal haulage due to NTPC. But if the NTPC haulage is excluded, the gap between actual gross earnings and the target widens considerably, by almost Rs 47 crore daily.
Here’s the other worrying bit. Although there was surge in total number of passengers travelling by trains between April 1 and October 20, by almost 9 crore, this was almost entirely due to an increase in suburban passengers and those who travel on a reserved ticket. The unreserved, non-suburban segment – which accounts for the largest share of train travelers – declined year-on-year.
The IR has been falling short of its earnings target for some years, year-on-year, as it witnessed an exodus of passengers to other modes of transport and lost its considerable share in the country’s freight market due to skewed tariff policies in the past. This skew was corrected to some extent in the last two years with a host of incentives being offered to freight customers, which is why haulage and earnings from freight are showing an upswing. But this improvement has obviously not been able to bring the IR anywhere near its annual earnings target. Besides, even though there has been an increase in passengers in some categories of travel, the overall passenger earnings continue to show moderate growth and this too is largely on account of reserved category of passengers. Remember, almost 66 paise of every rupee earned by the IR comes from freight and is used to subsidise passengers, where the national transporter continues to bear a loss on each seat. So not only is the IR unable to harness its massive potential to haul freight (outside of coal), it has been losing money on each passenger it transports. How will it then be able to meet any annual revenue generation target?
There is a popular perception that the merger of the Rail Budget with the Union Budget since last fiscal has led to worsening of its finances, since the oversight due to an independent budget has lessened. Remember, now that the IR no separate Budget, it is exempt from paying dividends to the government, which could be to the tune of Rs 9000 crore. The very purpose of being free of dividend liabilities is being defeated, however, since the IR continues to cross subsidise passengers through freight earnings.
A look back at the 2016-17 Rail Budget shows why being merged with the Union Budget may not have changed the IR’s fortunes either way. The shortfall between the revised estimates of total receipts in 2016-17 and actual total receipts was a staggering Rs 6,922.52 crore. That means a shortfall of almost Rs 19 crore each day of the fiscal, in an year when the IR presented its independent Budget. In the next fiscal, when the merger of the budget happened, the target for total receipts was increased by a little over Rs 24,000 crore to Rs 189,498.37 crore. But in the revised estimates for 2017-18, this was brought down to Rs 187,425 crore, or by a little over Rs 2,000 crore. What is the actual total receipt figure is yet to be known.
So despite falling massively short of targeted receipts for at least two years in a row, the IR again set itself an ambitious target of Rs 20,1090 crore gross receipts for the current fiscal. It is anyone’s guess whether this over optimism will be realised.
It is obvious that there is a crying need to raise passenger fares for the IR’s overall finances to improve. Besides, the need to eliminate cross subsidization of passenger fares through freight earnings has also been highlighted by a Parliamentary Standing Committee on Railways, chaired by TMC’s Sudip Bandopadhyay, which tabled its report in March last year. Some subsequent Parliamentary panel reports have also exhorted the IR to raise passenger fares, but all such exhortations have fallen on deaf ears. If anything, passenger fares are being rationalised. Take for example the flexi fare scheme, which was started in 2016 on a minuscule number of premium trains. This fare policy earned the IR incremental revenue as seats filled up – it was demand based. But persistent criticism and teh perception that occupancy on certain routes was getting affected since passengers were falling off the IR map due to steep fares, led to the IR scrapping/diluting this policy.
Anyway, in an election year, there is little chance of the government approving any move to raise fares. So consequently any chance of a dramatic improvement in the finances of the IR remains remote. Here’s another institutional exhortation to raise fares: The Comptroller and Auditor General (C&AG) said in its audit report for FY16 that “Ministry of Railways needs to revisit the passenger and other coaching tariffs so as to recover the cost of operations in phased manner and reduce losses in core activities. Operational losses on running suburban train services and on account of facility of free/concessional/complimentary passed to various classes of passengers need to be curtailed.” The CAG found that the IR earned a profit of Rs 38, 312.59 crore from freight services in FY16 and used 88.28 per cent of the profit from freight traffic to underwrite the loss on passenger services and addition of coaches. This practice has continued since.
Meanwhile, the Standing committee had noted that for 2016-17 the extent of cross subsidization was thus: The cost of transporting freight only 99 paise per 10 km but the charges the IR levied were Rs 1.60 per 10 km. On the passenger side, charges were 50 per cent of the cost of service – 36 paise per 10 km against the actual cost of 70 paise per 10 km.
According to IR’s own data, the transporter earned Rs 2,541.21 crore (Rs 2,511.82 crore) from passengers between April and October 20 this year, a growth of 1.17 per cent. And from freight, gross earnings were higher by 10.42 per cent to Rs 65,139.73 crore (Rs 58,994.34 crore). It is interesting to see that almost the entire earnings boost in the freight segment could be coming in from coal, as haulage and therefore earnings from almost all other commodities are either flat or declining during the first half of this fiscal. Coal accounts for nearly half the total freight basket of IR and it earned incremental revenue of over Rs 5000 crore between April and September this year vis-a-vis the same six-month period of 2017-18. Iron ore declined, cement was flat.
As for the passengers, the IR suffered a significant loss in passenger numbers during the first quarter (April-June) as it undertook massive maintenance works – which had been pending from earlier years and were seen causing more deadly accidents if left unattended. This had led to significant train delays as sections of the network remained closed to traffic for many hours at a stretch. At one point, almost three in four passenger mail/express trains were facing a delay. This situation has improved dramatically now, with the network reporting at least 70 per cent trains on time and this, in turn, has boosted passenger numbers on the second quarter. But despite trains adhering to better timings, there has been no dramatic surge in either the passenger numbers or earnings.
So it is clear from the earnings so far that IR’s finances for 2018-19 may need a further boost. The total earnings target in the Budget for this fiscal is a little over Rs 2 lakh crore which means IR will have to generate an incremental revenue of almost Rs 22,000 crore by the end of this fiscal. It is eyeing about Rs 10,000 crore additional earnings from freight but that still leaves a gap of Rs 12,000 crore in the earnings target. Stats:
Total passengers booked (million)
April 1 and October 20, 2018: 4696.95
April 1 and October 20, 2017: 4608.70
Total freight loaded (in million tonnes)
April 1 to October 20, 2018: 650.73 million tonnes
April 1 to October 20, 2017: 616.55 million tonnes
Gross passenger earnings (Rs crore)
April 1 and October 20, 2018: Rs 2,541.21 crore
April 1 and October 20, 2017: Rs 2,511.82 crore
Gross freight earnings (Rs crore)
April 1 to October 20, 2018: Rs 65,139.73 crore
April 1 to October 20, 2017: Rs 58,994.34 crore
Total gross earnings (includes passenger, freight, sundry and other coaching in Rs cr)
April 1 to October 20, 2018: Rs 97,816.98 crore
April 1 to October 20, 2017: Rs 89,917.65 crore