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Part I: Railways run on high costs
Passenger fares on Indian Railways are among the lowest in the world. Long considered the preferred mode of transport of the masses and subsidised by high cargo tariffs, it does not recover the cost of operating its passenger services.
In 2002-03, the last year for which estimates are available, the net 'social service obligation' of Indian Railways worked out to a staggering Rs 3,787 crore (Rs 37.87 billion), the bulk of it coming from under-recovery on passenger services.
Officials in the railway ministry admitted several of the services operated by Indian railways were loss-making. Though details of the profit or loss made by each train were not available, there were indications that several of these trains were running up huge losses.
A 2001-02 review of all "branch lines" disclosed that no less than 115 trains had become uneconomical, accounting for an annual loss of Rs 434 crore (Rs 4.34 billion).
It is widely recognised that while high-quality express services could be self-sustaining, the ordinary trains generate large deficits.
An October 2004 World Bank paper estimated that the cost recovery on 'ordinary stopping trains' was less than 30 per cent, though these consumed scarce line capacity.
Thus, express trains ended up subsidising ordinary trains. The average second class sleeper fare on express trains was 24-25 paise per km, while it was only 11-12 paise per km on passenger trains.
"This has an implication on the revenue of Indian Railways as the average distance travelled by a non-suburban passenger is around 90 km," said Alok N Bansal, a senior transport planner with the World Bank.
As Indian Railways was hugely geared towards passenger traffic, this put its finances under severe pressure. Though it reported a surplus of around Rs 800 crore (Rs 8 billion) in the last couple of years, Bansal estimated this could turn into an annual loss of Rs 1,000 crore (Rs 10 billion) if proper accounting methods were adopted.
"If Indian Railways were to make adequate provision for annual asset renewal as well as pension accruals as per normal commercial accounting terms, it is likely it would be a heavily loss-making entity; in fact, one well along the path towards bankruptcy, if it were not state owned," the World Bank paper said.
But railway ministry officials feel this might be an overestimation as 60 per cent of the rolling stock (wagons and locomotives) is now owned by the Indian Railway Finance Corporation, which it leases to the Indian Railways.
"Proper accounting could reveal that Indian Railways may actually be providing more than the required amount for depreciation," an official said.
Still, Indian Railways' capacity to invest in upgrading its infrastructure and services has been cramped. While it made investments totalling $17.3 billion (Rs 75,652 crore) during 1992-2002, China Railways pumped in as much as $85 billion (Rs 371,705 crore) during the period.
Things are all set to take a turn for the worse. Low-cost airlines --- there are over a dozen lined up for launch --- as well as well-equipped medium-haul (300-400 km) buses are prepared to poach railway passengers.
Railway officials admit that low-cost carriers would affect its AC-I and AC-II operations. But these top-end classes account for a small proportion of the total traffic carried by Indian Railways --- just 0.26 per cent in 2003-04.
To counter the threat, Indian Railways is focusing on the AC-III class segment. Envisaging a high growth in this segment, it is expanding its capacity in this class.
During the current year, about 60 per cent more AC-III coaches were added to its fleet.
Wherever there was less traffic in Shatabdis, they have been replaced by Jan Shatabdis. Besides, there are also Jan Sadharan trains which have been introduced as the poor man's Rajdhani.
Indian Railways may also announce the frequent travellers scheme for AC-I and AC-II classes in the rail budget. There is also a proposal to start high-speed trains on busy sectors.
But building a high-speed corridor for the 300-km Mumbai-Ahmedabad sector is expected to cost Rs 6,000 crore (Rs billion), which some sections of the ministry have said could be unviable. For, at this cost, the ticket would be priced so high, passengers would prefer air travel instead.
Going off the tracks
