Railways run on high costs

The first of a two-part series takes a look at the way Indian Railways is being run.

China Railways' cargo tariff is 30 per cent lower than the rates charged by Indian Railways

In the US it takes the equivalent of 24 paise to move 1 tonne of steel 1 km. In India, it costs 79 paise

Freight charged by Indian Railways is amongst the highest in the world and experts who have studied its functioning in detail as well as users like large steel producers, cement companies and automobile manufacturers feel the rates can be pared by as much as 40 per cent.

For several years now, freight traffic has been subsidising passenger movement and social services provided by Indian Railways. During 2003-04, the cross-subsidy for carrying suburban and non-suburban passenger services, parcel and luggage at rates that were below cost stood at Rs 5,983 crore (Rs 59.83 billion).

"The extent of cross-subsidisation is greater than in any other country," said KL Thapar, chairman of the Asian Institute of Transport Development. If the cross-subsidisation is rectified, the rates could come down by 40 per cent.

Because of political reasons, the governments at the Centre have shown reluctance to raise passenger fares. Thus, while passenger fares are unnaturally low in the country, freight tariff has been regularly raised to bridge the gap.

Data for 150 commodities carried by Indian Railways suggest that while 19 items like dry grass, fruit, fodder, mustard oil, fertiliser, edible salt, water and wheat are carried at 5-10 per cent below the cost, the tariff on the remaining 131 commodities including coal, cement, iron ore and petrol is up to 150 per cent over the cost.

Not surprising, the Confederation of Indian Industry has pressed the railway ministry to bring down the tariff gradually, starting with 15 per cent this year.

According to statistics made available by the AITD, the ratio of passenger fare to freight tariff (what it takes to move a passenger one km as compared to a tonne of cargo) in India is 0.3, while it is 1.4 in South Korea and 1.3 in China. A May 2002 World Bank report, India's Transport Sector: The Challenges Ahead, said this ratio was among the lowest in the world.

At current rates, transporting by rail still works out 20 per cent cheaper than by road. But experts feel the 20 per cent price advantage is not good enough.

"There is a huge shortage of rakes and trucks to provide door-to-door service. Indian Railways needs to bring down freight tariff by 40 per cent to get companies attracted once again," said Alok N Bansal, senior transport planner, World Bank.

The share of Indian Railways in the total cargo movement in the country has fallen steadily from 65 per cent in 1978 to less than 40 per cent now.

A leading automobile company told Business Standard its usage of rakes to evacuate its produce was down from 33-34 per month in the mid-1990s to just 7-8 now.

A large Delhi-based steel producer said the company prefers to send its products by road to the Mumbai Port for exports as it was more convenient.

Officials at Rail Bhawan, the headquarters of the Railway Ministry, are only too aware of the problem. And there are indications they are trying to fix it by reworking the freight policy.

Thus, the 3-7 per cent hike in charges for coal, cement, cement clinker, iron ore, limestone, gypsum, bauxite and manganese ore in November 2004 was much less than the rise in the cost of key inputs like coal and steel.

The officials are also toying with the idea of flexi-tariffs, whereby companies will be able to book wagons returning empty on a non-busy route at cheaper rates.

They are also grappling with the problem of how to move trains faster on the tracks. The World Bank report mentions that freight trains have run at an average speed of 23 km per hour over the past 20 years.

Goods trains often have to make way for passenger trains, causing long delays in their delivery schedules. There is heavy congestion on busy sections like Delhi-Mumbai.

Only a fourth of the country's rail network is double- or multi-track.

The Rakesh Mohan Committee in its report, The Indian Railways Report 2001: Policy Imperatives for Reinvention and Growth, had noted that the arrears in track renewal were as high as 12,200 km out of a total network of 63,000 km.

Also, the signalling technology in use in the country did not permit better utilisation of the network. "In China, on an average, 120 trains pass through a track in a day. Because of archaic signalling, the figure was less than half in India," said Bansal.