Railways and a question of transparency

Finances are out of whack

• Recent public statements about the performance of the Railways on the freight front seem to suggest that all is well with the Railways.
• In a recent interview, the CEO and Chairman of the Railway Board highlighted the fact that freight loading in January 2021 was the highest ever.
• A recent press report says that the freight earnings in 2020-21 are likely to be more than in 2019-20 despite the COVID-19 pandemic.
• Both these achievements are commendable by themselves but need to be seen in proper perspective.
• Poor freight revenue: About the record-breaking loading in January 2021, what is relevant is the freight earnings, which during the entire year are projected to be ?1,24,184.00 crore in the Revised Estimates for 2020-21.
  • This is, in fact, lower than what was achieved in 2018-19 (?1,27,432.72 crore).
  • Reason: As for the freight revenues going past that of the last financial year, that was only to be expected, with freight traffic having a relatively free run due to cancellation of most regular passenger services due to COVID-19.
• High Operating Ratio: Meanwhile, an important financial performance index has been airbrushed to project a picture totally removed from reality.
  • The Operating Ratio (OR), which is broadly the ratio of working expenses to revenues, has been artificially kept below 100% by making less-than-required provision for pension payments during 2019-20 and 2020-21.
  • While the official figures of OR are 98.36% for 2019-20 and 96.96% for 2020-21, the actual OR works out to 114.19% and 131.49%, respectively, if the required provision is made for pension payments.
• Inadequate funds for pension: Perhaps for the first time ever, the Indian Railways were unable to adequately provide for the Pension Fund, both for 2019-20 and 2020-21, totalling ?78,119 crore.
  • The Railway Ministry has reportedly sought a loan from the Central Exchequer to meet this shortfall.
  • While the under-provisioning for 2020-21 can be explained by the shortfall in revenues due to the pandemic and economic slowdown.

Immediate challenges

• Over the years, traffic revenues have been unable to keep pace with the increase in staff costs and pension payments.
• While the passenger and freight revenues increased by 84.8 % from 2010-11 to 2019-20, the staff and pension costs raced ahead at almost double that rate, by 157%, in the same period.
• Further, while in 2010-11, the staff plus pension costs formed 55.7% of the traffic earnings, by 2019-20, they had shot up to 77.5% of the traffic earnings.
  • This, despite the fact that there has been a reduction of about one lakh staff on roll during this period.
• The spike in the staff and pension costs is largely attributable to the implementation of the Central Pay Commission recommendations, a 10-yearly feature.
  • Being a Ministry of the Government of India, the Indian Railway’s finances are bound to be subjected to another fatal body blow by the next (Eighth) Pay Commission around 2025-26.
• Therefore, the immediate challenges are achieving a quantum jump in the revenues, particularly on the freight front, and a drastic reduction in the number of employees, there being no way to reduce the number of pensioners in the short run.
• It is in this context that the full commissioning of the two Dedicated Freight Corridors (DFCs), slated to be operational by 2022, assumes great urgency and importance.

Major Issues with the Railway sector

• A disturbing feature of freight traffic is the overwhelming dependence on one commodity: coal.
• Despite all the marketing efforts over the years, almost 50% of freight earnings are contributed by the transport of coal.
• With the availability of alternative sources of renewable energy such as solar at competitive prices, the dependence on coal-based thermal power plants is bound to reduce to meet the incremental energy needs.
  • India is a signatory to the 2015 Paris Agreement, committed to achieving targeted reductions in carbon emissions in a time-bound manner.
• The other major challenge facing the Railways is the burgeoning staff costs including pension.
  • Move to go in for recruitment of 1.5 lakh staff is simply baffling.

Steps to be taken:

• Roll-on roll-off model: The Railways have to therefore think seriously of a life after coal. An option that merits consideration is the adoption of the roll-on roll-off model of transporting loaded trucks on rail on the DFCs, which apart from boosting revenues has the added advantage of reducing the overall carbon footprint.
• Corporatisation: There have been suggestions to corporatise the Railways’s Production Units and outsource the medical services.
• Public scrutiny: The need for a detailed public scrutiny of the affairs of one of the largest undertakings in the country, public or private, at least once a year has not gone away.

Way ahead

• An annual report called ‘Indian Railways Report’ on the lines of the annual Economic Survey should be placed in Parliament every year detailing the physical and financial performance of the Railways, identifying the challenges and plans for the future to meet the country’s rail transport needs.