Reforming Railways

Indian Railways announced on Tuesday an increase in the base price of passenger travel across its network, except on the suburban segment. The fare hike is not enormous — one paise per kilometre for ordinary, non-air conditioned classes in non-express trains, reaching up to four paise per kilometre in the air-conditioned classes. For tickets, therefore, even in top of the line trains, such as the Rajdhani, the additional payment will usually be less than ~100. Season ticket holders will also see no increase in fares. While there may well be some grumbling about this increase, the fact is that it only scrapes the surface of what is needed. Indian Railways is going through one of the worst periods in its recent history.

 

The crucial financial figure as far as the Railways is concerned is its operating ratio — the ratio of operating expenses to operating revenue. This ratio has already crossed 100 per cent in the course of the ongoing financial year. In other words, the Railways is in the red. In both 2017-18 and 2018-19, the operating ratio was over 97 per cent. Even last financial year, the Railways was only bailed out, thanks to an advance payment received from National Thermal Power Corporation and the former Indian Railways Construction Company, according to a report presented to Parliament last month by the Comptroller and Auditor General (CAG) of India. The CAG pointed out there had been a steady decline in the revenue surplus of the Railways as well as of the share of internal resources in its capital expenditure. The costs of this inability to raise revenue were borne by the network through extended depreciation and by the general taxpayer in the Railways’ increasing dependence on support from the Union Budget. While so far in the financial year there have been no casualties in the Railways, postponing the renewal of superannuated assets is playing fast and loose with passenger safety. There is no question, therefore, that restoring the Railways to financial health must be an immediate priority. The fact is that the passenger will have to pay. Already almost all the revenue from freight is going to cross-subsidise passenger fare. In that sector, long-haul, air-conditioned chair car services pay for themselves but many other categories make losses. Nor can suburban rail be excluded from the net forever.

 

In essence, the restructuring of the Railways in order to prioritise its operational independence has become essential. The government has taken a first step towards increasing its internal efficiency by restructuring the Railways cadre in the teeth of opposition from employees. But it will need to go further. It is important to work out a mechanism to separate the Railways’ commercial interests from the government’s social obligations. If the government wants to impose social obligations on the Railways — whether in the Railways’ role as employer, operator, or investor — it will need to compensate the Railways fully for that and allow it to act otherwise as a profit-maximising corporation. This will help the Railways increase investment and improve overall efficiency in the economy with faster freight movement. The Ministry of Railways requires proper independence — and it should ideally be replaced by a holding company. In the absence of deep reform, rail finances and investment will continue to suffer.

 



Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel