Rail freight revenue to dip in real terms

Despite various initiatives taken by the Railways over the last four years, real growth in Railways' freight revenue is likely to be negative this year.

In 2004-05, the government has targeted a 3.8 per cent increase in freight revenue in nominal terms. However, deflated by a wholesale price index-based inflation level of 5.5 per cent, which is the upper limit of the government's inflation projection of 5 per cent to 5.5 per cent, the target is, in fact, 1.6 per cent lower than the actual revenue garnered from goods traffic in 2003-04.

The disruption in rail traffic on account of incessant rains and the decreased demand for rakes from the steel industry will further effect the Railways' freight earnings in the current fiscal.

The inflation adjusted revenue from freight had grown by a mere 2.8 per cent in 2001-02, as against a growth of 6.6 per cent in nominal terms. In the subsequent year, real growth fell to 0.7 per cent as against a nominal growth of 6.7 per cent. The 2003-04 growth in real terms was again 2.8 per cent, while the nominal growth was 4.5 per cent.

The difference between the freight revenue growth in real terms and the GDP growth has increased from 3 per cent in 2001-02 to 5.3 per cent in 2003-04.

In the current fiscal, if we assume a GDP growth of 6.5 per cent, which is the lower limit of the government's projection of 6.5 per cent to 7 per cent growth, the gap goes up to 8.1 per cent.

The difference has increased, despite the fact that freight rates have not been increased for three years now. Railways should have gained some competitive edge over the roadways sector.

Growth in real revenues for Railways seems to have a correlation to performance in the agricultural segment.

In 2002-03, when the agricultural sector did badly, with production falling by over 5 per cent, the rail freight revenues recorded low growth in real terms.

In 2004-05, also, with deficient rainfall and agricultural production expected to take a hit, the projections, as of now are quite dismal.

In contrast, the agricultural sector did well in 2001-02 and 2003-04, both years when the railways performed better in terms of real earnings.