Dinesh Trivedi panel cautions ‘severe financial crisis’ in Indian Railways

New Delhi: After two years of sustained healthy operations, Indian Railways is facing a severe financial crisis again, a Parliamentary panel headed by former railway minister Dinesh Trivedi has said in its report. Tearing into the government’s claim of a visible turnaround in operations, the panel has highlighted declining system productivity, rise in unit cost of operation and an unrealistic Operating Ratio (OR) target based on “textbook solutions”.

The 31-member panel lauded the railways for staging a turnaround to achieve an OR of 76 in 2007-08. “Unfortunately, the Indian Railways is once again reeling under a severe financial crisis. Its OR – money spent to earn Rs 100 – has deteriorated to 93.6, ratio of net revenue to capital is 5.6 and excess surplus of just Rs 3,740 crore in 2013-14,” the committee has said in its 85-page report tabled in Parliament. The Congress-led United Progressive Alliance (UPA) was in power during that period.

While these ratios were projected to improve as per the Revised Estimate (RE) of 2014-15, the actual earnings are likely to fall short of the RE by nearly Rs 2,500 crore and thus the projected improvement in operating ratio may not materialise to any significant extent and the actual operating ratio may be in the range of 92.5-93.5, according to the panel.

Railways’ OR has come down from 93.6 in 2013-14 to 91.8 in FY15. It is projected to further improve to 88 in the current financial year. The Trivedi panel has said the OR for last fiscal would have been close to 100 if the Railways had made adequate provision for depreciation based on the actual requirement of replacement of over-aged assets.

This “under-provisioning” for depreciation is resulting in piling up of delayed works concerning renewal of over-aged assets of the order of Rs 41,871 crore. Appropriation for development fund, used for taking up traffic facility works for uninterrupted flow of traffic, has declined from Rs 7,800 crore in 2013-14 to Rs 1,305 crore in 2014-15.

“Under-provisioning for depreciation and the inability of Railways to generate enough cash flows for servicing and increased borrowings for financing of rolling stock have resulted in a sharp decline in track renewals, procurement of wagons, coaches and electric locos. Simply stated, presently the Railways are not generating enough cash flows for even running as a ‘going concern’ on a continuing basis,” the report said.

These factors have adversely impacted system productivity which had been increasing for the last many decades but has started falling after 2012-13. The input cost per Net Tonne Kilometer (NTKM) — the broad measure of systems productivity for freight operations — has gone up from 31.19 paise in 2011-12 to 32.61 paise in 2013-14, indicating a deterioration of nearly 4.5% in freight operations productivity. Similarly, unit cost per Passenger Kilometer (PKM) has gone up from 22.82 to 23.21 paise — a decline of 1.7% in passenger business productivity.

Further, NTKM per wagon day has come down from 9,261 in 2011-12 to 8,471 in 2013-14, wagon turnaround time has deteriorated from 5.08 to 5.13 days and NTKM per employee had declined from 0.55 to 0.53 during this period. “The Railways’ input cost per NTKM has gone up by around 15% each in FY13 and FY14 — one of the sharpest increases in unit cost of freight operation in the recent years. Similarly, passenger unit cost has gone up by nearly 13.4 per cent in 2013-14 over 2012-13 but the Railways unfortunately appears to be totally unaware of this disturbing trend,” the report has said.

According to the panel, growth in passenger earnings of up to 18% between 2012 and 2015 have been achieved on the back of a sharp increase in passenger fares and not due to improvement in throughput. “In their replies, Railways have admitted the originating passenger grew by 2.4 per cent in 2012-13, dipped by 0.3 per cent in 2013-14 and 2.12 per cent in 2014-15 (till February). The passenger throughput is likely to fall rather more sharply by over 3.5 per cent from 1,159 billion PKM to 1,117 billion PKM as per traffic plan of 2015-16,” it said.

Railways may get the benefit of the last passenger fare hike of June 2014 for the first three months of the current financial year but thereafter the entire growth of nearly 19% would have to be achieved through increase in the number of originating passengers and PKMs which appears extremely unlikely, if not Impossible, the committee said.

The panel also questioned Rail minister Suresh Prabhu’s decision of not announcing new trains and projects. “No new trains is not a good idea. People living in remote, under-developed, tribal and hilly areas have been waiting for decades for a rail link,” Trivedi said. On the ministry’s move to seek lending from multilateral institutions, the panel cautioned against falling into a debt trap and said railways must study the bankability of projects “in minute detail” before implementing any financing model.