Indian Railways is one of the largest employer in the world which currently employs over 13 lakh people directly and much more indirectly.
Indian Railways is at a crossroads. Aided by the government’s renewed thrust on Indian Railway’s transformation, it can become a strong, profitable, reliable and publicly trusted organization. In the process, it can play a big role in serving India’s fast-growing transportation needs. On the other hand, if coherent measures towards efficiency upgradation are not formulated and executed on an urgent basis, then it risks becoming a burden on the economy.
(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.
- A railway regulator, if put in place, can lead the way in drawing up and implementing a fare-rationalization road map. Improvement in facilities, higher frequency and punctuality of trains, ease of travel and transportation, and enhanced safety are essential for Indian Railways to get back volumes.
- Wages that constituted 35% of gross receipts in FY-08 have swelled to 62% in Indian Railways’s revised budget for FY-18. With such high fixed costs, the only way to improve financial sustainability is to augment capacities without inflating the manpower base, thus tapping the operating leverage to the maximum.
- To broaden capacities, an aggressive plan to double, triple or quadruple rail lines must be drawn up and carried out.
- The roll-out of dedicated freight corridors (DFC) can go a long way in easing traffic congestion, improving speeds, and reducing accidents by segregating freight and passenger trains.
- By providing customized and efficient logistics services with faster and predictable transit times at low costs, DFCs can help Indian Railways in regaining lost market share. In addition, as freight traffic shifts to these freight-only lines, passenger trains too can see service quality improvement.
- Thus, work on the two corridors, Dadri-Nhava Sheva and Dankuni-Ludhiana, must be expedited.
- Also, work on the four other DFC projects should be commenced soon.
A more potent plan to bolster revenue and efficiencies will need to be chalked out. This can be done with active private-sector participation on funding. Above suggested measures need to be and implemented aggressively.