Railways Budget: Engineers need to recognise tech advantage, says expert

The government’s commitment to Railways as an infrastructure industry, a job creator and a service provider for the common man, is reflected in the Budget. The rise  in capex and initiatives like outsourcing 150 new trains are welcome.

As the government plans outsourcing intercity train services, the railways’ key performance indicators (KPIs) and likely financial results of FY20 will be of critical interest to investors. Take freight. I do not see any impending slowdown from the ongoing year’s railway freight performance results. A true analysis of freight performance will start from the traffic output — net tonne kms (NTKMs). The Q1 to Q3 NTKMs in FY20 are 496 billion, 3.6 per cent less than what was achieved during December 2019 period. In nine months, the railways has improved loading over past year, in export containers, petroleum oils, raw materials for steel plants,  fertilisers, and iron ore. It did almost as well as last year, in pig iron and finished steel, food grains and domestic containers.  Commodities that dipped in performance in the first nine months are cement and other goods. With three months of peak loading season remaining, the railways can make up this gap, with the committed forces of the traffic and finance teams sweating the last quarter to pace up loading and rounding up all revenue receipts.  

 The story of breadwinner coal is a cliffhanger at the close of nine months. Loading dropped to end Q3 at 431.5 million tonne, with Coal India’s largest open pit mine at Dipka in Chhattisgarh, being under prolonged flood waters, due to Lilagar river changing course unexpectedly. The loading target for coal has been reduced in RE to 592 mt. Now, with this 2.5 mt month coal producing mine of CIL, back in action, there is hope that coal freight loading could touch 600 mt. The divisional managers should grab more share in imported coal to step up the railways’ share in coal transportation. Of 667 mt domestic coal and imported coal available, the railways could pick up 431 mt of coal so far (63 per cent market share), which is low. The shrinking lead is another concern. Traffic managers are aware that a fall in ton kms due to shrinking lead can pull down freight earnings. And yet the railways announced withdrawal of busy season surcharge, which may need reviewing. Per capita income of India has seen a rise over the past two decades, from $443 in 2000 to $2015 in 2018, but this has not reflected in passenger fares. A minute increase has been made now. This too does not address the deep subsidy being afford to urban middle class who are the majority users of suburban rail systems.

A matter of concern in passenger business is the rejig reflected in revised projections of sources of revenues. Estimated revenues of services like AC chair car have been revised downward from Rs 2,059 crore to Rs 1,958 crore, while retaining overall passenger revenue target at Rs 56,000 crore. Revenue projections for AC 3 tier have been lowered from Rs 12,425 crore to Rs 11,725 crore. Both these classes of travel are high on revenue per passenger km, compared with costs. The revision will give a misleading signal on demand, for prospective investors seeking to partner in private train operations.  

The Budget speech places emphasis on technology. This needs to be recognised by engineers. Stagnation in technology is reflected in dependence on manpower-intensive maintenance practices and poor quality. Frequency of attention for repairs is pulling down asset productivity. A 28-30 per cent of revenues are consumed by maintenance expenditure. Operations and sales expenditures (excluding lease charges) comprise 22 per cent of revenues — very high for system.  

As the government gears up to increase capex in rail, a serious thought has to be given to approach taken to infusion of Advanced Rail Technologies. This cannot be left to Railways’ ‘buy off the shelf’ evangelists. India, if not the railways, will have to assimilate, indigenise and localise technology like Trainsets, Train Control systems and advance signalling for sustainability in modernisation efforts. It is time for many activities like asset maintenance to be outsourced. This would permit infusion of more efficient, low-cost technologies. Outsourced private train operators would possibly seek such options. Once private train operators find the business attractive, private leasing firms will discover a lucrative market in India, offering leasing finance at 8.5 per cent. They will be happy to buy or acquire or join in partnerships for investment in rolling stock.

The writer is retired financial commissioner (Railways) and ex-officio secretary to Government of India