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Getting Railways on Track Financially

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March 31, 2022

Why in news?

The government raised the budgetary allocations for the Railways providing scope for the Railways to show some promise of a future revival.

What are the concerns plaguing the Railways?

Indian Railways is the fourth largest rail network in the world with an operating route length of more than 65,000km.

  • Passenger fares- The working of Indian Railways is caught up between making it a self-sufficient organisation and serving it as a transport system for the poor.
  • The passenger fares usually remain static for years, burdening the Union Budget.
  • The discrepancy between freight charges and passenger fares seem to distort the Railways' performance.
  • Operating ratio- Indian Railways’ operating ratio has been pegged at 96.98% for 2022-23.
  • The operating ratio implies that out of Rs 100 earned, the Railways spends close to Rs 97 for running the business.
  • However, according to the CAG, the actual operating ratio for the year 2019-20 stands at 114.35 % if the actual expenditure on pension payments is considered.
  • Decision making- Indian railways have powerful workers' unions that are centralised with hierarchical decision-making.
  • As a result, even simple decisions take years to resolve.
  • Finances and accounting- Indian Railways spends heavily on revenue expenditure and there is little left for capital expenditure.
  • General inefficiencies- In the previous years, it has missed most of its targets, including of electrification, track renewals, bridge works, and doubling of tracks.
  • Stranded projects- Some projects remain stuck, including works related to doubling, new lines, gauge conversion, traffic facilities, and electrification.

What is the budgetary allocation for railways?

  • Budget 2022 has allocated Rs 1,40,367.13 crore to the Indian Railways for 2022-23, which is 27.5 % higher than in 2021-22.
  • Railways is one of the vital and critical sectors of the PM Gati Shakti Project.
  • While a massive increase in capital expenditure (capex) is welcome, there was no stated plan or strategy to make the Railways financially sustainable.
  • Over the years, the Railways has focused on increasing the number of trains on its fleet rather than expanding the tracks and routes.
  • This policy has been ineffective and unviable as a result of increasing traffic congestion, delays and sub-optimal traffic management.

What is the remedy?

  • Without adequate and smooth revenue generation, modern rail infrastructure and amenities cannot be provided and viable.
  • Revision of fares- Passenger and freight fares have remained stable since the Railways’ December 2019 revision which had increased the passenger fares by up to 4 paise per km.
  • The retail price across the board has been rising and the Railways must keep pace with them.
  • Optimisation is needed in the Suburban and intercity local railways pricing.
  • A rail fare commission may be established, which can set the fares based on demand and cost conditions.
  • Off-Budget borrowing- The government may go for off-Budget borrowing but this may raise fiscal deficit concerns and inflationary tendencies.
  • Budget borrowings may not be a significant source of investments as the government’s total debt has already reached 90% of GDP.
  • Freight movement- The rail carrier’s share in freight movement which has steadily declined over the years must be boosted.
  • Self-reliance- The Railways needs to stand on its own feet by becoming financially independent.
  • It should make enough profit to enable it to spend on infrastructure upgradation and modernisation.
  • Role of States- Local bodies and State governments may be made to cover the cost of subsidies for suburban traffic if it cannot be recovered from the fare basket.
  • Tourist-based trains- The Railways has to introduce more tourist-based trains and charge a good premium for this.
  • Upgradations- The Railways needs to implement pre-paid card-based ticketing in order to minimise ticketless travelling and to increase the revenues.
  • Non-fare sources of revenue- Revenues can be raised through non-fare sources such as advertisement and publicity, e-auction, monetisation of assets, parking fee, sale of scrap, and allowing branded business shops inside trains.

 

References

  1. https://www.thehindubusinessline.com/opinion/making-railways-financially-sustainable/article6527369ece
  2. https://www.businesstoday.in/latest/policy/story/5-big-challenges-indian-railways-faces-145335-2016-09-15

 

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