The Indian Railways’ revenue problem

The Indian Railways’ revenue problem

Subject :Economy

Section: Msc

Context:

• The Indian Railways (IR) has been on a spending spree with respect to capital expenditure (capex), particularly after the government merged its rail budget with the main budget.
• However, its operating ratio, which is the ratio of ordinary working expenses to the gross traffic receipts, has shown no improvement. A lower ratio implies better profitability and surplus for capital investment.

Rising Expenditure

• Present scenario: Indian Railways intensifies capital expenditure post-budget merger.
• Hurdles in generating capital: Operating ratio stagnates, hindering profitability and capital surplus.
• Over-reliance on Gross Budgetary Support (GBS) and Extra Budgetary Resources (EBS) leads to growing debt.

Concerns

• Sources of Loss: Passenger services incur significant losses, necessitating cross-subsidization from profitable freight segment.
• Report by CAG: Comptroller and Auditor General highlight Rs. 68,269 crore passenger service losses in 2021-22.
• Increasing Freight Volume: Emphasis on boosting freight volumes to improve revenue, but current growth lags behind national economic growth.

Suggestive Measures

• Optimizing Freight Business: Artificial division of cargo into goods and parcels hampers efficient handling and transportation.
• Bifurcation of cargo: Proposal to categorize cargo based on characteristics, bulk and non-bulk.
• Need for reforms: Declining rail share in crucial commodities like coal, iron ore, and cement underscores need for strategic reforms.