Slump-hit Indian Railways may cut freight rates

Even as railways’ receipts from transportation of goods appear to be falling short of the FY20 target by a steep 20% due to the economic slowdown and related decline in coal, cement and food grains loading, Railway Board chairman VK Yadav on Thursday hinted at a plan to cut freight rates to woo customers and simultaneously hike passenger fares, which continue to be heavily subsidised.

“We are going to rationalise (passenger) fares and freight rates. Something is being thought about. Freight charges are already very high. Our target is to bring down the logistic cost (of industry) and thereby attract more (freight) customers from the road sector,” he told reporters.

Yadav, however, added that increasing fares was a “sensitive” issue and it had to be discussed at length before a final decision was taken.

In September, the national transporter had given its freight consumers a host of incentives, including a waiver of the 15% peak season surcharge, to boost loading. But this has proved to be insufficient to arrest the decline in the freight loading growth. While the passenger segment always used to be cross-subsidised by the freight segment for political reasons, the situation aggravated over the decade to 2014 as the ministers concerned refused to hike passenger fares. The fares saw up to 14% hike in 2014 and this was followed by the introduction of surge pricing on base fares of Shatabdi, Rajdhani and Duronto trains in 2016, but the cross-subsidy to the segment continues to be high at over Rs 30,000 crore. About 65% of the railway earnings come from freight.

The railways’ surplus from internal resources has shrunk over the years — honest accounting will show the transporter is incurring operational deficits — leaving little for its investment funds and making it excessively dependent on budget support and borrowings to fund its huge capital needs.

Had the railways been efficient, its freight loading would have grown at least 20% faster than nominal GDP, in the five years to FY19, but freight loading rose just 10%, implying an average annual growth of a measly 2.5% (see chart).
To add to its worries, the railways’ debt servicing costs are set to rise at a much faster clip starting FY21 and might more than double in five years as repayment obligations concerning Dedicated Freight Corridor Corporation of India and the proposed high-speed train network kick in. With its capacity expansion/asset replenishment projects reliant almost totally on assorted borrowings and budget funds, the transporter is at the risk of putting a freeze on new projects, unless its own revenue streams turn robust.

The transporter had just about managed to keep its head above water in FY19 with an operating ratio (OR) of 97.3%, but only after getting state-run NTPC and ConCor pay Rs 10,000 crore and Rs 3,000 crore, respectively, in advance as freight charges. It had done a similar accounting jugglery in FY18 as well and may have to repeat the same in the current year as well to avoid showing losses.

“The steadily declining financial performance of Indian Railways is reflected in its FY18 operating ratio of 98.44%, which was the worst in the last 10 years,” the Comptroller and Auditor General (CAG) said in a report tabled in Parliament recently.

“If advance freight of Rs 4,762 crore from NTPC (in March) and Rs 2,580 crore from Ircon was not included in the earnings of FY18, OR would have been 102.66% instead of 98.44%,” it said. The rise in OR was despite the railways being exempted from the payment of dividend from FY17 onwards.

Talking about revamping of the Railway Board and the new Indian Railway Management Service (IRMS) cadre being created, both steps aimed at improving efficiency and speedy decision-making, Yadav said all officers would continue to work in their specialised services till modalities were worked out regarding cadre merger. Officers from within the organisation with experience of 35 years would only be posted as chairman-cum-CEO of the board, he said.

Railway minister Piyush Goyal too allayed fears of railway officers over losing seniority in the revamp exercise saying, “Officers will have an equal opportunity based on merit-cum-seniority to become a part of the Railway Board. Posts will not be fixed based on the officer’s cadre.”

Source: Financial Express