UP Roadways will take you 550 kilometres from Delhi to Lucknow for Rs 822, or Rs 1.49 per km. The Railways will get you there for barely half the price, Rs 432. Indeed, you could get there in air-conditioned comfort for Rs 755 in a three-tier sleeper coach — less than what the “Volvo” bus service charges: Rs 1,000 upwards for “semi-sleeper” travel.
Across the railway system, the passenger fare per kilometre ranges from as little as 21 paise for “ordinary” second-class travel to Rs 1.75 for a seat in an air-conditioned chair car, and more for greater comfort or speed (eg: Rs 2.58 by the Shatabdi). Across all classes of travel, the Railways earns Rs 2 per passenger-km.
The NITI Aayog calculated last year that rail travel cost less than half of road travel. Logically, competition from roadways should not prevent the Railways from charging enough per passenger to cover all costs. Yet it loses money hand over fist on the bulk of its passenger services. If you accept the Railways’ method of accounting (questions have been asked), it loses a rupee for every rupee it gets from passengers.
Why doesn’t the Railways charge more? The organisation says it is performing a social service. How is that a virtue when the public is paying the price anyway, through massive financial support via the general Budget? Why not simply raise fares? The real answer is that any fare hike would become a political issue, so the Railways inches up fares through subterfuge: Reclassify a train from express to superfast (for which the fare is higher), or reduce the number of coaches for cheaper classes of travel and provide more coaches for higher categories.
That, too, has provoked protests. Besides, such measures don’t yield anywhere near the revenue that would balance the books. So, we get perverse outcomes. The demand for rail travel far exceeds supply, but the Railways has no financial incentive to increase passenger transport. The attention given to increasing haulage capacity has focused on new freight corridors, less so on boosting passenger transport capacity.
The shocking result is that, while freight traffic has grown 40 percent in a decade, passenger traffic has been static. In fact, it is marginally lower this year than a decade back. How is that social service?
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There are other undesirable outcomes. To make good the loss on its passenger service, the Railways pushes up freight rates for goods transport (the old cross-subsidy game loved by all populists). This is said to explain why the Railways has lost out on goods traffic to road, accounting now for only a quarter of the total, with almost all of it being bulk items like coal and iron ore.
Inflated tariffs may have been a factor but, even at current rates, transporting goods by rail is usually cheaper than the road alternative. The real issues are the organisation’s commercial orientation and delivering end-to-end service.
The Railways is in a bind. Its profitable business is losing ground to the competition, while meeting pent-up passenger demand will mean more losses. With expenditure more or less matching annual revenue of Rs 2.65 trillion, most of the massive investment under way has necessarily been funded by borrowings and (because debt-servicing costs have grown) increasingly through support from the Budget.
The current surge in investment is outsize: Over the past decade it has crossed Rs 13 trillion, with Rs 2.6 trillion this year alone being almost equal to projected revenue! As much again is promised by 2030 — investment that should be transformative (greater speeds, better service, and more haulage capacity).
One could argue that such funding of the Railways should be treated as infrastructure investment, with no financial return expected. Also, that the growing pension bill (determined by periodic Pay Commissions) eats up 23 percent of revenue and casts current operating numbers in an unfairly poor light.
But the reality to be faced is that the organisation has been unable to provide adequately for depreciation (so that ageing assets can be renewed), a safety fund, and even pensions. What the Railways needs urgently is a new business plan, with a new pricing plan.
By special arrangement with Business Standard.
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