Indian Railways in 2024 (part 1): Tracks of progress or stations of stagnation
As 2024 draws to a close, taking stock of Indian Railways' (IR) performance feels a bit like examining the last New Year’s resolution list in December—you find a few tick marks but mostly unfulfilled promises and some creative self-promotion. Sure, there have been some infrastructure gains, but the year has also witnessed a dismal Operating Ratio, uninspiring financial results, missed deadlines on marquee projects, over-the-top fanfare for a handful of flashy schemes, discontent from General class passengers, and a bungled attempt to unify the fragmented management through a new service structure.
Critiquing IR’s 2024 journey is no small feat, especially when much of the public seems convinced that the organization is on an unstoppable trajectory of greatness. This belief owes more to IR’s skilful media orchestration—loudly announcing what is on the horizon rather than celebrating actual achievements—than to any objective reality. Nonetheless, I have taken up the challenge of delivering an honest assessment in this blog, split into three parts. Some readers may appreciate the candour, while others may gleefully sharpen their trolling skills; everyone has their own prism to look at things.
Let us start with the positives. To be honest, the list is rather short. After much consultation with railway aficionados, I would say the highlights—on paper—include good progress in constructing road over bridges and under bridges to enhance network capacity (reaching nearly 12000 in the last decade, triple of what was done in the previous decade), new lines and connectivity in the Northeast, notable strides toward achieving 100% electrification by 2025, the growing presence of Vande Bharat trains reshaping passenger experiences, an uptick in patronage for reserved travel and improved safety record with reduced level of fatalities. That said, many of these so-called positives come with their own baggage of negatives, which we will tackle in one of the subsequent instalments of this series.
Financial Performance
When it comes to judging IR, financial performance must take centre stage—social obligations notwithstanding. After all, the goal is not to rake in profits like a corporate giant, but to generate enough surplus to reinvest in infrastructure and future growth. This boils down to keeping the Operating Ratio (OR)—the classic working expense-to-revenue ratio—comfortably below 100. Alas, the reality is anything but comforting. The OR has been doing a precarious balancing act, hovering dangerously close to 100, like a tightrope walker on a windy day. Scratch the surface, and it gets worse: in practical terms, the OR has already tipped over 100. How? By skipping some of the basics, like making proper provisions for depreciation and pensions, IR’s clever accounting gymnastics makes the numbers look a bit less grim. It is not just a case of creative bookkeeping—it is more like wishful thinking, or worse, even living in a fool’s paradise, with a calculator in hand.
Operating Ratio of IR
(Source: This as well as other graphs that follow have been extracted from PRS site)
Passenger transportation worldwide is seldom profitable and often requires support through federal, state, or city subsidies. In India, with its large population with significant levels of poverty and social development needs, the railway system relies on a model where the freight sector subsidises the passenger segment. This approach is more than just a subsidy; it hampers the growth of the freight sector itself. This coupled with lack of imaginative initiatives, freight performance remains underwhelming. While India's economy is growing at 6-7%, the transportation sector is expanding at a much faster rate. However, long-term freight growth traffic on IR remains stagnated at around 4% in the last decade and even worse, this year it is only around 2%. This too only because traffic of coal, the most-polluting fossil fuel, has gone up by 6% or else the freight traffic growth would have been negative.
Freight Loading of IR in Billion NTKM
The situation is even worse in the passenger segment. IR has yet to recover to pre-COVID patronage levels recorded between 2015 and 2020.
Passenger Loading of IR in Billion PKM
Revenue growth figures are relatively better but remain uninspiring, falling short of even the modest 5% mark. The slight improvement seems to stem from changes in freight dynamics—such as variations in haul distances and the type of commodities transported—and a higher deployment of AC coaches in the passenger segment.
IR’s Revenue in Rs. Crore
Investments
The story of capital expenditure (Capex) in IR is one of paradoxes. On one hand, IR struggles with a weak Operating Ratio (OR), leaving it barely able to account for asset depreciation, let alone generate surplus for future projects. On the other hand, investments in railway infrastructure have skyrocketed, driven by a broader government perspective that IR’s finances should not be evaluated in isolation but as part of a larger strategy for national economic development. With this approach, funding has largely shifted to government grants, allowing for a dramatic increase in infrastructure spending.
The logic behind this policy is sound: rail transport remains the most eco-friendly and cost-effective mode of transportation. However, IR's internal revenue contribution to Capex has plummeted to under 5% since 2017-18. While borrowing was a major funding source in the earlier years of this government, the mounting interest burden—compounding IR's already poor financial performance—has prompted a shift. Today, nearly all investments are financed through Gross Budgetary Support from the Government of India. The merger of the rail budget with the national budget has further eased pressures, eliminating the need for dividend payments and giving the government greater fiscal and grant flexibility.
IR’s Capex and sourcing of the same in Rs. Crore
Is this pattern of financial performance and high levels of investment sustainable? No government in India would be willing to raise passenger fares, as such a move would be politically disastrous. Can expenses be reduced? To some extent, but this would require a paradigm shift in IR’s operational and maintenance model—a shift that has yet to show any serious resolve. Additionally, nearly 70% of IR's expenses stem from salaries and pensions, making cost-cutting particularly challenging.
So, what is the way forward to ensure IR's long-term sustainability? Should IR take inspiration from the bard’s timeless advice, as Polonius cautioned Laertes in Hamlet: "…Neither a borrower nor a lender be; for loan oft loses both itself and friend…"? Certainly not entirely—after all, how else can IR fund the investments crucial for its growth? The real challenge lies in striking the right balance: prudent use of grants and borrowings, meaningful investments, efficient spending, and boosting earnings. We will explore this conundrum further in the next part.
…
(to be continued)
Waiting for the next part.
ReplyDeleteOperating ratio oe OR is a yardstick to measure financial state and IR has a poor OR. Freight only operation overseas yields OR at 60% or little less which means 40% profit. In IR model, out of this 40%, some 25%-30% should subsidize passenger traffic and the rest would support investment in the infrastructure.
IR has never published the financial status transparently so far.
Not really sir. The budget overview is fairly transparent, monthly statistics is not being put out although it was done earlier
DeleteGreat Sir
ReplyDelete🙏🙏
Delete🙏
ReplyDelete😊
DeleteHello - I am interested in finding where this latest data is. Can someone please tell me where IR publishes the most up-to-date, live railway data? They used to post on indianrailways.gov.in... I will be frequently checking this page for responses - RN
ReplyDelete