Railways may project a lower FY27 operating ratio on higher revenue, Centre's aid

After improving to 97.45% in 2020-21, Indian Railways’ operating ratio remained elevated at 107.39% in 2021-22, 98.14% in 2022-23, 98.43% in 2023-24, 98.32% (revised estimate) for 2024-25, and 98.43% (budget estimate) for 2025-26.

The operating ratio measures an organization’s operational efficiency by comparing its working expenses, such as fuel, salaries, and maintenance costs, to its traffic earnings. The ratio indicates the amount spent to earn every ₹100. A higher ratio indicates a weaker ability to generate a surplus, while a lower ratio allows Railways to channel more of its earnings towards capex.

Revenue boost

While Railways' pension liability has kept the operating ratio at above 98% for the last few years, the national transporter's fast return to normalcy post covid and a pickup in both freight and passenger revenues may give it enough room to show a further increase in internal revenue generation in 2026-27, thereby pushing down the operating ratio, said the first person cited above.

The operating ratio should improve closer to 97.5% in 2026-27, approaching the 97.45% reported in 2021-22, he added.

In 2025-26, Railways' internal revenue generation is expected to remain flat at ₹3,000 crore, which could rise in 2026-27 along with revenue from passenger and freight growing from around ₹3 trillion in the current fiscal year to ₹3.25-3.30 trillion in the next fiscal year.

Also, there is an expectation that the gross budgetary support (GBS) will again remain above 90% of total allocation, providing enough funds to bring Railways' books in order in 2026-27, with the operating ratio improving closer to 97.45%, said the second person cited above.

Queries emailed to the ministry of railways remained unanswered until publication. However, an official said more than 10% growth in revenues (passenger and freight) may raise Railways' internal generation (surplus) next fiscal year to over ₹5,000 crore, which should bring 2026-27 operating ratio below 98% for the first time in five years.

“The real picture of Indian Railways can emerge only if the government takes over the salary and pension burden into the general finances while allowing Railways to make capex through a mix of GBS and market borrowings in a more transparent manner. This would prevent Railways from masking some of its revenue expenditure as capex now, while private money would ensure that funds are used efficiently," said V. Shanker, former executive director-planning, railways.

“There is a need for Railways to become operationally more efficient to bring about real improvement in the operating ratio. Also, Railways should account for all emerging liabilities clearly in its books to show gains being made in its finances. It should also identify efficiency parameters of its high-value projects such as Vande Bharat trains, dedicated freight corridor, etc.," said Subodh Kumar Jain, former member (engineering), Railway Board.

Financial prudence

To improve the operating ratio, railways needs to increase earnings while keeping a check on expenditure. It has invested record capex in the last five years to enhance its capacity by creating new lines, doubling, procuring/manufacturing wagons, coaches, locomotives, etc. The ministry has also set an ambitious target of three billion tonnes of loading by 2030.

The railway ministry is also working to increase the share of sundry revenue (non-fare revenue) in its total receipts, which is just around 4% now. The other endeavour includes initiatives aimed at maximizing revenue receipts, like expansion of the commodity basket through the creation of business development units (BDUs) at the ministry, zonal and divisional levels for better coordination for the movement of bulk commodities like coal, and effective and innovative marketing strategies to capture more traffic.

To enhance passenger revenue, various initiatives like running of special trains, introduction of Vande Bharat and Amrit Bharat trains, augmentation of onboard capacity, introduction and rationalization of flexi-fare scheme in premium trains, periodical review of reservation quota wherever required, extension of the Alternative Train Accommodation Scheme known as vikalp (option) have also been undertaken.

Railways has also taken several measures to boost freight and non-fare revenues. These include the introduction of the Gati Shakti Multi-modal Cargo Terminal Policy with liberalized provisions, wagon investment schemes, the launch of the Goods Shed Rating Dashboard, and the introduction of an e-auction policy for commercial earnings and non-fare revenue contracts.

Additionally, it has placed special focus on e-commerce and FMCG segments, including certain popular commodities such as cosmetics, lithium-ion batteries, and battery-powered vehicles in the Red Tariff. It has also issued revised guidelines under the Liberalized Automatic Freight Rebate Scheme to incentivize traffic loaded in the empty flow direction.

Railways has also initiated several expenditure-control measures aimed at achieving savings in operating costs. Expenditure management efforts focus on better manpower utilization to improve per capita productivity, electrification of railway tracks, rationalization of repair and maintenance of rolling stock, and efficient asset utilization, among other steps.

In addition, rigorous monthly monitoring of expenses is being carried out to ensure effective cost control, the second person said.

The electrification of railway tracks helped Railways save over ₹4,700 crore on diesel traction in 2023-24 alone.