IR achieves highest Operating Ratio first time in a decade; spent 97.8 Paise to earn a Rupee

IR Optg RatioNew Delhi:  Indian Railways spent 97.8 paise in the first half of this financial year to earn a rupee but said this worrying trend would be arrested by March.

However, passenger and freight targets have been missed and the Seventh Central Pay Commission’s award could add to the burden of the country’s largest employer of people.

This is the highest that the operating ratio (OR) has touched in more than a decade and compares with the 88.5% budget estimate for the year ending March, according to last year’s data, the Operating Ratio was 91.25%.

Some railway ministry officials said the figure may go to 110% once the pay commission award kicked in. The recommendations will add Rs 7,100 crore to the railway salary bill for the January-March 2016 period. It will need to pay an additional Rs 28,400 crore annually on account of the increases.

A railway official in the finance department said this needed to be put in context. After the sixth pay commission’s award in FY2006, the OR rose to 104% from 76%, he said. To be sure, the organisation’s financial status is still on the mend.

“The railways is not exactly in the pink of health at this juncture to pay higher salaries to over 13 lakh employees and an equal number of pensioners,” the official told. The government has been striving to improve the organisation’s finances by opening up the sector to overseas investment and private sector participation.

A ministry spokesperson told that the OR at the end of September was not a “true indicator of the railway performance” and that finances were likely to recover by end of the full financial year. “We will possibly end the year at OR of 91 or 92%,” the spokesperson said. He explained that the OR was inflated as the railways follows a cash-based accounting system and this would get adjusted by the end of the year.

As for the pay commission award, he said the railways was not likely to pay any additional money for the January-March period as it may take longer than that for the government to accept the report. While the organisation is broadening its asset base, net tonne kilometres (NTKMs) contracted in the first half. NTKM is a freight productivity parameter that counts both loading and distance performance. Passenger numbers have shrunk by 2.5%.

Align Costs with Revenue Generation

A higher operating ratio (OR) denotes higher revenue (read: consumption expenditure). This clearly needs to be arrested. But given that Indian Railways is in the process of implementing an ambitious investment plan, it is possible that the higher OR simply reflects the fact that the new assets planned are yet to generate cash.

It makes sense to go for modular investments to better manage resources during the gestation period. Also, by adopting modern accounting practices, the Railways will be better able to align costs and overheads with revenue generation. Improved freight logistics, better passenger amenities and connectivity should all improve OR.

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