BackNew business model for railways: more revenue, better efficiency
Indian Railways generates less than 5% of its revenue from non-tariff sources as against 20% in some other countries
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The Indian Railways is planning to leverage its existing infrastructure such as train stations, land and tracks besides advertising to generate additional revenue and improve its financial health. Such a move is a departure from its usual practice of earning more by hiking fares.
“Indian Railways typically has focused on increasing revenues through tariff hikes. We want to change that and challenge our conventional thinking on freight policies to win back our share in the transportation sector. We will exploit new sources of revenue so that every asset, tangible or non-tangible, gets optimally monetized," railway minister Suresh Prabhu said in his speech on Thursday.
Fares remain the largest source of revenue for the national carrier which has the largest track network in the world. Its share of revenue from non-fare sources is nominal, said Prabhu. Less than 5% of its revenue comes from non-fare sources as against 20% in some other countries.“Over a period of the next five years, we will strive to reach this world average by monetizing assets and undertaking other revenue yielding activities," he said.
Prabhu’s ministry will try to generate more revenue through re-development of stations, which will allow it to monetize land and buildings through commercial use. Financial bids have been received for the contract to re-develop Habibganj station in Bhopal. Four other stations are in advanced stage of bidding.
Leasing out lands adjacent to rail network to promote horticulture and tree plantation is also being considered. The ministry will explore the possibility of using railway tracks for generating solar power, Prabhu said. Spaces in stations and other infrastructure will also be used for outdoor advertising to generate revenue.
“We will evolve models to determine the revenue potential of at least 20 stations in the next three months. In all, we target to increase advertising revenues by more than four times the current revenues," he said.
However, such plans to raise revenue is nothing new, said experts. “These are all old ideas, the revenues that these sources will generate will be of small magnitude. Nothing much can really come out of this," said A.V. Poulose, former finance commissioner of the railways.
Manish Agarwal, leader-infrastructure at audit and consulting firm PricewaterhouseCoopers, agrees.
“Most of these ideas have been mentioned before. So the issue really is implementation. Ideas like land monetisation have been part of every vision paper in recent years. What is needed is institutional readiness and mindset change to do such commercial transactions," Agarwal said.
The railways, meanwhile, will also try to monetize the vast amount of data that it generates every day such as passenger preferences, ticketing patterns, commodity flows and information on various services and operations.
“We are exploring the possibility of monetizing our data, software and some of the free services provided by IR (Indian Railways) such as PNR enquiry, currently being commercially exploited by other players but at the same time ensuring that no compromise to customer privacy is made," Prabhu said, adding that the Indian Railways Catering and Tourism Corp. website can be used for e-commerce because of the sheer number of traffic it generates.
The ministry also plans to liberalize its parcel business by opening the sector to container train operators. “We will take all steps necessary to expand our service offerings specially to growing sectors such as e-commerce. We will also initiate a pilot project for online booking of parcels," he said.
By 2020, the railways aims to generate an annual revenue of about R4,000 crore by increasing productivity and better manufacturing practices in the production units and workshops.
“Each rupee that gets expensed will be re-examined to ensure optimal productivity. We will take a ‘zero-based budgeting’ approach to the financials of the ensuing year," Prabhu said.
He said that signs of his ministry’s efforts to earn more are visible. “We have already made humble beginnings in this direction, as a result of which a saving of ₹ 8,720 crore from the budget estimates would be effected this year, neutralizing most of the revenue shortfall," he added.
The railways has reduced the cost of power procured for electric traction system by signing long-term agreements, brought down inventory-carrying costs and launched austerity drives, Prabhu claimed.
“In the next year, we will increase the rigour on cost optimisation multifold," he added. For this, the railways aims to procure power directly at competitive rates. Power procurement contracts, already signed and implemented, is likely to give an annualized saving of ₹ 1,300 crore. More economical ways to source power is expected to save ₹ 1,700 crore in 2016-17, taking the total savings to ₹ 3,000 crore, said Prabhu.
The organization is also carrying out a comprehensive review of its procurement and consumption of diesel to check leakages and save more than R1,500 crore in the next fiscal year
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