Raise railway productivity, not rates

Indian Railways (IR) is one of the largest and busiest rail networks in the world spread over 64,015 route kilometres and is the chief carrier of bulk freight traffic. In 2011-12,  its revenue from freight services (Rs 69, 547 crore), had accounted for nearly two-thirds of the gross railway revenue (Rs 104, 153 crore).  The Railway Minister, in his recent budget speech, had raised a toast to the Indian Railways for entering the billionaire’s club, reckoned by the estimated quantum of originating freight traffic over its network in 2012-13.

One need not, however, be swayed by such self-congratulatory statements. For, it is not just the gross volume or the tonnage moved but the total ‘tonne kilometres’ logged that would be the true indicator of productivity and efficiency of freight transport over a railway system. The statistics of freight traffic in the USA, China and Russia, the three countries cited in the minister’s speech, provides a perspective on the relative standing of Indian Railway as compared to others. In 2011, the US railways transported 1.8 billion tonnes of freight with a total of 2,469 billion tonne km; the same year China carried 1.9 billion tonne, and recorded 2,947 billion tonne km, and Russia in 2010, while moving 1.1 billion tonne freight traffic registered a figure of 2,011 billion tonne km. Compare this with the Indian Railways which had a freight loading of 0.97 billion tonnes in 2010-11, but carried only 688 billion tonne kilometres of traffic. One expects that it will be a long haul before the Indian Railways could gain entry to the exclusive club of rail freight carriers.

A paper released by the Working Group of the Planning Commission brings out that the total transportation output, (arrived at  by dividing the sum of passenger kilometre and freight tonne kilometre by total route kilometre) is 52 million in China, as against 23.5 million in India, and its employee productivity is also higher by nearly 50 per cent. It concludes that the Chinese system, which is comparable in terms of network size and employee strength, has been able to score better mainly due to higher level of asset utilisation and modernisation.

The freight business of the Indian Railways has been the mainstay of its revenues, and has also helped it in partly subsidising the passenger segment where, because of public and political pressures, the fares cannot always be raised to cover the cost of operations. There was a time when the share of freight traffic with the railways was as high as 80 per cent but all this has changed over the years, and today the position is totally reversed. The rapid economic growth accompanied by growing market competition in recent years presents a challenge to the railways to reorient their operations through cost cutting and volume maximisation strategies.

The chief competitor to railways is the road which has inherent advantages of being more penetrative than rail services, providing door-to-door delivery of consignments, and having a greater flexibility of operations. However, the economic and environmental benefits of railways are becoming increasingly clear. Over the long run, this, combined with congestion and fuel cost issues in other modes of transport, will shift more traffic to rail. This opens up a window of opportunity to the railways to draw out the best from its assets and make the freight business not only highly productive and competitive but also to help in maximising its profits.

The key to traffic growth and profitability, therefore, lies in how efficiently the railways can put to use their existing assets, including its labour force. It is no secret that the Indian Railways were able to record a phenomenal growth in freight loading during the Tenth Plan period primarily due to developing a market -focused strategy that aimed at capturing a large volume of traffic by permitting higher axle loads and ensuring better turn round of wagons.

Post the railway budget, there was considerable debate over the advisability and political correctness of increasing the passenger fares.  While the minister may have won accolades for ‘biting the bullet’, it ought to be understood that the revenue earnings from passenger operations cannot help railways much in improving its financial position. Besides, it also has its inherent limitations.  Fares cannot be raised either more frequently or beyond a reasonable limit, since this is in conflict with the railways’ social and welfare obligations.

If losses in passenger services have to be subsidised by the freight sector it would make carriage of goods by rail more expensive and cause greater outflow of traffic to road. This will obviously not be in the national interest. In order to avoid a situation where the railways are forced to revise freight charges frequently to compensate for losses in passenger operations, and thus blunting its competitive edge to road even further, the railways should bestow greater attention to reducing the operational expenses by improving productivity of its assets. This alone can bring succor to the railways’ finances.

Tinkering with freight tariff and passenger fares too often may be touted as political bravado, but, in the long run, could well turn out to be counter-productive. Besides, such moves may also fuel inflation. The setting up of a Rail Tariff Regulatory Authority — as and when it sees the light of the day — can  be helpful  in rationalising the extent and periodicity of revision of fares and freight rates and ensuring that these are not dictated by political expediency but remain integral to the over-arching objective  of improving productivity and efficiency of railway assets in the country.

It is, therefore, imperative that the railways re-draws its strategy, thus paving way for a gradual improvement in its operating ratio, that reflects the percentage of total working expenses to gross earnings.

The year 2012-13 is expected to close with a figure of 88.8 per cent compared to  the best ever operating ratio of 74.7 per cent achieved in 1963-64. While there is no ideal ratio for railways, a lower operating ratio helps in generating higher internal resources, and ensuring a greater degree of  profitability.

S N Mathur is former MD, Indian Railways Finance Corporation. E-mail: mathur.surendra@gmail.com