Indian Railways Capital Expenditure and Operating Ratio

Context:

The Indian Railways has witnessed a substantial increase in capital expenditure after integrating its rail budget with the main budget. However, the operating ratio, which evaluates expenses against revenue, has not shown improvement.

Relevance:

GS III: Indian Economy

Dimensions of the Article:

1. Current Challenges Faced by Indian Railways
2. Long-Term Issues in the Indian Railway System
3. Ways to Ease and Improve the Transport of Cargo by Indian Railways

Current Challenges Faced by Indian Railways

Indian Railways confronts several pressing issues as outlined below:

Mounting Debt and Financial Sustainability:

• Indian Railways is increasingly relying on Gross Budgetary Support (GBS) and Extra Budgetary Resources (EBS) due to a lack of surplus funds.
• The cost of servicing the debt, including principal and interest, now accounts for 17% of revenue receipts, up from less than 10% before 2015-16.
• Avoiding the financial instability experienced by entities like Air India is crucial.

Declining Share in Transporting Key Commodities:

• The railways’ share in transporting critical goods has been diminishing.
• For example, coal transportation, which was 70% in 2011 for 602 million tonnes, dropped to 60% in 2020 for 978 million tonnes.
• The share of Exim (Export-Import) containers to and from ports has fluctuated between 10% and 18% since 2009-10, with a 13% share in 2021-22.

Reduced Network Tonne Kilometers (NTKM):

• A significant drop in Network Tonne Kilometers (NTKM) was observed in 2015-16 and 2016-17 by 4% and 5% respectively.
• Over the seven-year period ending in 2021-22, NTKM showed an annual growth rate of 3.5%, considerably lower than the growth rate in road transport.

Long-Term Issues in the Indian Railway System

The Indian Railway system faces several long-term challenges:

Financial Discrepancy Between Passenger and Freight Services:

• The railway system grapples with a significant disparity between the profit-generating freight segment and the loss-incurring passenger segment.
• A 2023 report from the Comptroller and Auditor General of India (CAG) highlighted a substantial loss of Rs. 68,269 crore in passenger services, which needed to be covered by freight traffic profits.

Sluggish Growth in Freight Segment:

• From April to July 2023, the annual growth in freight volume and revenue has been just 1% and 3%, respectively, while the Indian economy is growing at 7%.
• The modal share of the Indian Railways in the country’s freight business has drastically decreased to approximately 27%, a significant decline from its over 80% share at the time of India’s independence.

Artificial Cargo Division Hindering Efficiency:

• The artificial division of cargo into goods and parcels is impeding operational efficiency.
• These divisions, influenced by tariff rules, handling procedures, and monitoring practices, do not align with the concerns of shippers.
• A more efficient approach would be to categorize cargo based on its characteristics as either bulk or non-bulk, termed as value-added.

Competition and Decline in Freight Share:

• The Indian Railways faces stiff competition from road transport, which has been growing at a faster rate than rail transport.
• This competition, combined with fluctuating Net Tonne Kilometres (NTKM), challenges the IR in maintaining and expanding its share in freight transportation, necessitating an overhaul of the railway transportation system.

Underperformance in Containerized Domestic Cargo:

• Despite 15 years of privatization, containerized domestic cargo represents only 1% of IR’s loading and 0.3% of the country’s total freight.
• Factors such as high haulage rates and the perceived risk of market development with potential losses contribute to this underperformance.

Ways to Ease and Improve the Transport of Cargo by Indian Railways

The Indian Railways can take several steps to enhance the transport of cargo and address its current challenges:

• Review Tariff Structure: Examine the tariff structure for general cargo, which is often higher than truck rates, and make it more competitive.
• Efficient Cargo Trains: Replace counterproductive VPH parcel trains with covered wagons to carry cargo more efficiently.
• Flexible Cargo Options: Provide flexible options that cater to varying cargo sizes, ensuring that shippers can transport cargo efficiently without volume restrictions.
• Common-User Facilities: Establish common-user facilities at cargo aggregation and dispersal points, particularly in mining clusters, industrial areas, and large cities.
• Consistent Environmental Regulations: Enforce consistent environmental regulations for rail and road loading/unloading facilities, ensuring a level playing field for both modes of transportation.
• Volume-Based Tariffs: Introduce tariff structures that are based on the quantity loaded, incentivizing volumetric loading and promoting efficiency.
• Cargo Aggregators and Optimization: Encourage cargo aggregators and optimize payload and speed for improved operational efficiency.
• Infrastructure Modernization: Invest in infrastructure modernization, including high-speed rail, station redevelopment, track doubling, coach refurbishing, GPS tracking, and digitalization. These upgrades will enhance safety, efficiency, and cost reduction.

-Source: The Hindu