(i) Intense competition:
- Indian Railways has been fighting intense competition and losing. The organization that carried 89% of India’s freight traffic in financial year (FY) 1951 was left with only a 32% share in FY-12.
- Indian Railways is becoming second-best versus the airline industry, that has been growing in the last four years, as well as against the fast-improving road network.
(ii) Deterioration in operational and financial metrics:
- In the last 10 years, Indian Railways has witnessed perceptible deterioration in operational and financial metrics.
- This has been caused largely by a combination of issues like distorted top line growth; huge jump in wage costs; years of under-investment.
- Profit margin is targeted at a paltry 3% , in FY-18, reflecting Indian Railways’s vastly reduced fund-generation capability into focus.
- Indian Railways’s gross receipts (revenue) in the last 20 years have been artificially aided by an aggressive escalation in freight rates even though service standards remain patchy.
- Its upper-class passenger fares too have witnessed regular inflation while airlines have dropped their fares substantially in the last three-four years. On the other hand, lower-class passenger fares have been static.
- This system of cross-subsidization has been a key reason for the loss of market share.
(iv) Poor economics:
- During FY-03 to FY-18, India’s per-capita gross domestic product (GDP) on a purchasing-power-parity basis has grown by 200%, but the per-km passenger ticket price for second-class express trains has risen by just 20%.
- Indian Railways bears sizeable losses (of about Rs.34,000 crore in FY-17) on account of social service obligations, mainly on lower-class passenger fare discount.
- The total running rail track, the key capacity bottleneck, has grown at a disappointing 0.9% CAGR since FY01. This is despite the fact that more than 40% of Indian Railways sections suffer from capacity utilization of more than 100%, as a result of which too many trains run on the same stretch of lines.
- Congestion causes train delays and leads to overcrowding in lower-class categories.
- This curbs the speed to a sluggish 50 kmph and 30 kmph for passenger and freight trains, respectively diluting Indian Railways competitiveness further.