On the eve of another railway budget, railway finances are in a mess. The fact of the matter is that the weak economy has put Indian Railways in a tight spot. Railways minister Suresh Prabhu had projected double-digit growth in revenue during his last budget on the expectation that the core sectors of the economy would show healthy growth. But, as the economy sagged and traffic slowed, revenue growth dropped to single digits.
Revenue increased just 5.8% from a year ago in the first 10 months of the current fiscal. During the same period, in the previous three fiscal years, it grew in the range of 12-20%. The budget estimate projected revenue to rise 15% in FY16 over FY15. The gap between the budgeted target and reality is glaring.
Weighing on growth is sluggish freight traffic, which grew less than 1% till January. If we take the previous three fiscals, freight volumes rose 4.5% during those years in the first 10 months of the year. Freight traffic growth is going rapidly downhill.
The budget had set an incremental traffic volume of 85 million tonnes (mt). So far this fiscal, the Railways have seen an incremental volume of 8.5 mt, or a mere 10% of the set target. More than three-fifths of the Railways’ revenue comes from freight traffic.
The passenger business has also been subdued. Revenue growth rate at this segment halved from 15% a year ago to 7%. Last year’s railway budget had projected passenger receipts to grow 16.7%.
One area where Indian Railways managed to fare better than budget estimates is in working expenditure—this increased just 1.5% till December, compared with a forecast of 9.6% rise for the full fiscal. But this provides limited relief. An enterprise cannot shrink its way to health.
The railways’ decongestion plan requires massive investments and a slack in revenue can affect internal resource generation. Also, there are the pay commission recommendations, which, if implemented, will further squeeze railway finances to the limit.
Raising freight rates may not be a prudent option now, considering the fragile demand (tariff grew just 0.3% in January). The railway ministry had said in a concept paper on the Rail Development Authority of India, “…enhanced freight rates have not helped in attracting more traffic to the railways and have, in fact, led to traffic moving to road in certain segments".
The other option is asset monetization and a hike in passenger fares. Like the divestment programme of the government, the asset monetization plan of Indian Railways didn’t make much headway despite it having been discussed ad nauseam for some time now.
That leaves us with passenger fare hikes, where the railways has a strong case. The passenger segment is estimated to lose over ₹ 30,000 crore in the current fiscal year due to cost under-recoveries.
But whether the minister and indeed the government can summon up the courage to take this politically unpalatable decision remains to be seen.