3 days ago
Financial turnaround of Indian Railways
he first public railway line utilising steam locomotives for passenger transport was established in England. George Stephenson's rail system, the Stockton and Darlington Railway, opened on September 27, 1825, in England. Rail technology was quickly adopted in India, with its first journey commencing in 1853 and covering 34 km. Indian Railways has since leaped forward in its operations with enhanced safety systems, high-capacity loco systems (12,000 HP), passenger-friendly coaches, and various types of wagons, most of which are indigenously developed. Railways currently employ 1.3 million people.
At Independence, Railways had 57,000 route km (RKM) of track, with less than 1% electrified and 50% broad gauge and, while the rest were meter and narrow gauge. Currently, Railways possess 69,000 RKM, with 90% of its routes electrified. At the time of Independence, India did not manufacture locomotives domestically at a commercial scale. All locomotives in use were imported, primarily from Britain, Germany, and the US. India soon began locomotive manufacturing in 1950 itself. Now, railways operate, India's first semi-high-speed, fully indigenous electric train the Vande Bharat Express, designed and manufactured under the Make in India initiative.
Many freight terminals have been developed as Gati Shakti Terminals. Railways have also made significant digital advancements, such as online passenger and freight systems, with various operational activities, especially real-time train tracking, being digitalised. Railways have world-class PSUs, manufacturing units, including RVNL, IRCON, IRCTC, ICF, and RITES.
We now have world-class railway stations developed through PPP, for example, at Rani Kamalapati Railway Station in Madhya Pradesh and Gandhinagar, with amenities comparable to modern airports. Additionally, 1,300 stations are in the pipeline for redevelopment under the Amrit Bharat Schemes, with mixed public-private funding.
The revenue expenditure in Railways during the financial year 2023-24 was ₹2,52,833 crore against revenue receipt of 2,56,093 crore. The revenue surplus was ₹3,260 crore. The capital expenditure from the budget in 2023-24 was ₹2,62,216 crore. The accompanying graphs depict net revenue, working expenses, and operating ratio (the percentage of revenue spent on operating expenses). Railway is currently not able to invest from its earning for network expansion, station developments, reliant on budget grant from central government.
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Indian Railways' earnings are not in harmony with the capital deployed by the government. The incremental capital output rato is 20 is the ratio of change in capital to change in revenue, which signifies poor financial return for railways that means if we invest 20 rupees we are only getting output Rs. 1. Railways should aim to achieve a better incremental capital output, needs to earn a minimum of ₹7,000 crore per year (by rationalising pricing of freight, passenger, maximising non-fare revenue and reducing expenses) to bring down the ratio from 20 to four in line with the economy.
Railways should able to function as business entity. Success examples from certain countries like China, France, and the US reveal that separation of operations & fixed assets, expanding marketing, improving governance, citizen-centric approach as well as autonomy in decision making, will lead to better profits. Some global examples are stated below:
BNSF Railway Company (Burlington Northern Santa Fe) is one of the largest freight railroad networks in North America, headquartered in Texas. It was created in 1995 through the merger of Burlington Northern and the Atchison, Topeka and Santa Fe Railway. In 2010, BNSF became a wholly owned subsidiary of Warren Buffett's Berkshire Hathaway implemented a series of reforms that significantly enhanced its operational efficiency, service quality, and profitability . BNSF prioritised network rationalisation , removing redundant routes and focusing on high-demand corridors. Net income increased from $ 1.7 billion to $ 6 billion within five years.
BNSF prioritised network rationalisation removing redundant routes and focusing on high-demand corridors. Net income increased from $ 1.7 billion to $ 6 billion within five years. The Chinese government began separating government functions from enterprise management, leading to the establishment of China Railway Corporation in 2013 (later restructured as China State Railway Group in 2019). This allowed railways to operate more like commercial entities with a focus on profitability and efficiency. A major reform thrust was the massive expansion of high-speed rail (HSR), starting in the mid-2000s, which turned China into the global leader in HSR technology and network size (HSR 45,000 RKM. Addition, government introduced market-oriented mechanisms, allowing private and local capital into railway construction and services. Railway investment was re-structured to rely more on bond financing and public-private partnerships (PPPs) rather than only State funding. In addition, incentives to performing railway zones caused increased outputs.
Telescoping pricing of Railways from July 1 states that no increase up to 500 km in ordinary class; increase of ₹5 for distance 501 to 1500 km and ₹10 for distances up to 2,500 km and ₹15 for distance slab 2,501 to 3,000 km. This hike may add additional revenue less than 2 %. There is scope to increase fare much higher percentage due to healthier economy and poverty reduction.
Railways should be able to compete with air transport, especially by introducing high speed trains quickly which would reduce congestion at airports and also attract throughputs to railways in turn additional revenues. Railways should also generate additional income from their manufacturing units, non-fare revenues, unbundling non-core activities, real estate development, and network expansion, implementation of Rail Development Authority will certainly attract private players. The establishment of an integrated transport department to help prioritise projects and distribution of throughput effectivity, establishing a unified transport regulator, will help the transport sector grow faster and healthier and may attract private parties in operation, investment and maintenance. Ballooning capital expenditure to Railways from the budget is a matter of concern. The above cited reforms may help Railways to generate additional revenues and shall become self-reliant.
Source: Ministry of Railways
This article is authored by M Vijayakumar, joint adviser, NITI Aayog, New Delhi.
