January , 2020
Railways financial stress: Is economic slowdown the main reason?
19:58 pm

Kishore Kumar Biswas

The Indian Railways (IR) has been going through a rough financial patch for the last few years. But this year, it has reached an unprecedented low. The operating ratio (OR) is one of the most popular measures used to show the strength of railway finance. It has come down to 98.44% in FY 2018-19. The OR simply refers to how much is to be spent to earn Rs. 100. So when the OR is 98.44%, it means that IR has to spend Rs. 98.44 to earn Rs. 100.

Railway development includes gauge conversion, electri-fication and spending more on railway safety areas among other things. A report on IR finance submitted in parliament has revealed a precarious financial condition for the organisation. In reporting the OR, the IR has used a trick in 2017-18. The OR was actually much worse than what was reported. There have been some advance payments from two PSUs. These advance payments were actually counted in the IR’s financial reporting. The IR would show a negative balance of Rs. 5,676.29 crore instead of a surplus of Rs. 1,665.61, had these advance payments from NTPC and IRCON been absent. Without these advance payments, the OR would have been 102.66%.

Some important facts

The financial situation of the IR has been weakening for quite some years. Notably, since 2016-17, IR’s revenue surplus has been falling. This is indicative of its failing financial health. During 2017-18, the net revenue surplus decreased by 66.1%, that is, from Rs.  4,913.00 crore in 2016-17 to Rs. 1,665.61 crore in 2017-18. One of the main factors responsible for this has been the inability of the IR to earn adequately from internal financial resources. As a result, the IR has to depend more on the annual Budget of the Indian government. Moreover, dependence on extra budgetary resources has also been spiralling.  

Falling DRF and its possible consequences

Another important thing in this regard is the falling Depreciation Reserve Fund (DRF) of the IR. What is this and why is it important? The accounts of this fund are maintained in the through the Railway Board. The fund comes mainly from the contributions from revenue on the basis of the recommendations of the Railway Convention Committee and the interest on the fund balances. The fund is spent mainly on account of replacement and renewal of assets in accordance with the relevant rules. The DFR is important because it is one of the five key funds maintained by the Railway Board and is channelled to meet expenditure for upkeep and replacement of crucial assets including railway tracks. That means it is related to safety of the passengers and linked to smooth operations for the railways. The recent collapse of a portion of the main building of the Bardhaman Railway Station under the jurisdiction of the Eastern Railway has again raised the issue of falling DRF ratio.

Target concessional fare 

It has been reported in the Parliament that one of the biggest burdens for the IR has been the concessional passengers. The senior citizens, railway employees and former employees are included in this list. The report points out that during the past three years, 11.45% of the reserved passengers travelling by railways have availed various types of concessions. IR had forgone about 8.42% of reserved passenger earnings towards various concessions. The amount of concession pertaining to senior citizens and Privilege Pass/PTO holder was 37.2% and 52.5% respectively. Also, the majority of the concessional passengers travelled in the non-air-conditioned class. The senior citizen concession, which accounts for the highest share of concession provided by the IR, had mainly benefited the AC class passengers. Railway audit has found out that 23% of senior citizen passengers who travelled in 2AC and 3AC classes availed 52% of the total amount of senior citizen concession. The ‘Voluntary Concession Give-up’ scheme for senior citizens failed to evoke significant responses.

Some recommendations have also been given to the IR regarding the use of concessions. Containment and rationalisation of concessions are in the forefront. Moreover, suggestions for increasing departmental vigilance in lowering misuse of privilege pass/PTOs by the departmental staff have also been given. 

The other side

It is true that the financial loss due to concessions is quite significant. But why are the various departments of the government not sharing the responsibility? Departments like defense, HRD, food, agriculture, and industry use the concessions in a big way but it is only the IR that bears the financial burden. Moreover, management weakness, political interference and rampant corruption are also
matters of concern.

India’s railway passenger fares is said to be one of the lowest in the world. But at the same time, freight transport by rail is comparably expensive. Cross subsidy in pricing of passenger trains and goods trains is said to be one of the major weaknesses of the IR. But at the same time, pricing should be such that every sector is competitive. After the national independence, road transport has been improved vastly and now handles a significant portion of freight traffic. Delay in setting up of a committed freight corridor has been a consistent pain point for the IR.

The Railways provides critical contribution to the Indian transport system, particularly for long distance travelling and bulk transport. In this situation, privatising of the IR, even partly, cannot be a solution. It should be noticed that the Railways is about five times more energy efficient and four times more land efficient as compared to road transport. At the same time, use of trains is more hassle free. Cost of rail construction is also lower than the cost of construction of national highways. India must concentrate on using more of its resources in strengthening and developing its railways.


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