INDIAN RAILWAYS REVENUE PROBLEM
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Context: Despite a significant increase in capital expenditure, the Indian Railways' operating ratio has not improved, highlighting challenges in enhancing profitability and generating surplus funds for future investments.
Key point outlined by Railway Minister
- The Indian Railways experienced a 14% increase in capital expenditure to ₹2.45 lakh crore in the financial year 2022-23. This higher capital expenditure is aimed at revamping railway operations.
- With the increased capital investment, the Indian Railways has doubled its new track laying capacity to 12 km/day from the previous 4-5 km/day.
- The Railway Minister stated that the Indian Railways plans to step up its investment further, with at least ₹3 lakh crore capital allocation expected from the next year onwards. This increased investment is crucial to meet the country's aspirations and reduce logistics costs.
- India's first hydrogen train is expected to be operational by August 15 next year. This initiative represents a significant step towards environmentally friendly transportation.
- He emphasized the need for India to shift away from road transport to railways to achieve affordable logistics.
- He highlighted that increasing the share of railways in the overall transportation of goods and decreasing the share of road transport would significantly reduce the cost of logistics in the country.
- Indian Railways is one of the largest and most complex transportation systems in the world, carrying over 8 billion passengers and 1.2 billion tonnes of freight annually. However, despite its vast network and social importance, Indian Railways faces a serious revenue problem that threatens its financial viability and operational efficiency.
Low passenger fares
●Indian Railways has been subsidizing passenger services at the cost of freight services, resulting in low passenger fares that do not cover the operational costs.
●According to a report by NITI Aayog, the average passenger fare of Indian Railways in 2018-19 was Rs 0.43 per passenger-km, which was less than half of the average fare of China Railway and one-tenth of the average fare of European Railways.
High freight charges
●To compensate for the losses incurred in passenger services, Indian Railways has been charging high freight rates for goods transportation, which makes it uncompetitive compared to other modes of transport such as roads and waterways.
●According to a report, the average freight rate of Indian Railways in 2018-19 was Rs 1.43 per tonne-km, which was more than twice the average rate of China Railway and four times the average rate of European railways.
Inefficient asset utilization
●Indian Railways has a large amount of underutilized or idle assets, such as land, rolling stock, stations, and workshops, which do not generate adequate returns on investment.
●According to a report by the Comptroller and Auditor General of India (CAG), Indian Railways had 43,000 hectares of vacant land as of March 2019, which could be used for commercial development or leasing. Similarly, Indian Railways had a surplus of 12,000 coaches and 2.5 lakh wagons as of March 2020, which could be deployed to increase the capacity or improve the quality of services.
Inadequate non-fare revenue
●Indian Railways has not been able to tap the potential of non-fare revenue sources, such as advertising, catering, parking, tourism, and station redevelopment, which could enhance its income and reduce its dependence on fare and freight revenue.
●According to a report by the Railway Board, Indian Railways earned only Rs 10,505 crore from non-fare revenue in 2018-19, which accounted for only 6.6% of its total revenue, compared to 15-20% for some of the leading railways in the world.
Way forward to address the challenges and improve the revenue situation
Rationalizing passenger fares and freight charges
- Indian Railways should raise passenger fares to align with the actual operating costs of providing passenger services. By doing so, the railway can reduce the burden on its finances, ensuring that passengers pay a fair share of the cost of their travel.
- Lowering freight charges can make rail transportation more attractive to businesses and industries. This approach can boost the demand for freight services, increase revenue, and help Indian Railways compete effectively with other modes of transportation.
- Implementing dynamic pricing for both passenger and freight services can optimize revenue. It's essential to eliminate cross-subsidization, where profits from one service are used to subsidize another. This will help ensure that pricing reflects market demand and allows the railway to efficiently allocate resources to different services.
Optimizing asset utilization
- Indian Railways should invest in modernizing its infrastructure, such as electrification, track upgrades, and signalling systems. It should also integrate technology, data analytics, and artificial intelligence to monitor and manage assets, improve safety, and enhance the overall efficiency of rail operations.
- Rationalizing the number and locations of stations and workshops can lead to cost savings and efficient resource allocation. This involves identifying underutilized or redundant facilities and consolidating them to streamline operations and reduce maintenance costs.
- The railway should explore opportunities to monetize surplus or idle land and other assets through commercial ventures or public-private partnerships (PPPs). By leveraging these assets for revenue generation, Indian Railways can fund infrastructure improvements and modernization projects without relying solely on government funding.
Diversifying non-fare revenue
- Indian Railways should actively seek new avenues for non-fare revenue, including expanding its advertising presence across digital and physical platforms. This can involve selling advertising space on trains, at stations, and on digital platforms to generate additional income.
- Indian Railways can enhance its revenue by offering value-added services such as catering, Wi-Fi, entertainment, e-commerce, and more. Additionally, developing unique tourism products, like luxury trains and heritage circuits, can attract travellers and boost income.
- Transforming stations into world-class hubs with retail, hospitality, office spaces, and other commercial activities can create substantial non-fare revenue. To manage these initiatives effectively, creating a dedicated entity or subsidiary focused on non-fare revenue generation can ensure efficient planning, execution, and optimization of these activities.
- Indian Railways faces a pressing revenue challenge due to outdated pricing models and underutilized assets. The way forward involves fare rationalization, asset optimization through technology, diversifying non-fare revenue sources, and pursuing innovative initiatives such as station redevelopment, enabling a sustainable and modern future for India's extensive rail network.
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Q. How did the Indian Railways contribute to the Indian freedom struggle during the colonial era, and what impact did its role have on the mobilization of people, resources, and ideas, ultimately shaping the course of India's fight for independence?