Off-track finances

Indian Railways needs better financial control

The Union Cabinet approved proposals worth Rs 32,512 crore from the Ministry of Railways on Wednesday to expand the rail network in different parts of the country. The approved funds will be used in states such as Uttar Pradesh, Bihar, Maharashtra, Gujarat, and Odisha. Investments in capacity enhancement, which has considerably increased in recent years, must be welcomed as it will help improve overall economic efficiency. But higher investment in capacity creation through the Union Budget should not divert attention from the railways’ own finances. It will only be able to perform to its potential, and make the necessary investments in capacity creation and modernisation if its finances are ably managed. Two recent reports in this context highlight the shortcomings in the way the national transporter is run.

A recent report by the Standing Committee on Railways reiterated its suggestion that railways seek partial assistance from the Ministry of Finance to meet its pension requirements. While the railways has provided adequately in the current year, it took a special loan of Rs 79,398 crore in 2020-21, which was appropriated to the pension fund. Further, the extended impact of the pandemic affected revenue, and the government allowed the railways to incur revenue expenditure exceeding revenue receipts in 2021-22, which was used to meet pension expenses. Covering for the provisioning would naturally affect the functioning of the railways. However, the bigger issue is not just a deficit in a year or two, owing to extraordinary circumstances, but that of long-term sustainability. The pension liability will continue to increase and pose challenges for the railways. It is estimated to have increased from about Rs 17,000 crore in 2011-12 to the projected outgo of about Rs 60,000 crore in 2023-24.

The rising liability will hurt more in the coming years, partly because it is not generating enough revenues. The standing committee in this context noted: “...the persistent decline in internal resource generation was an indicator towards internal deficiencies in overall planning and management of the Indian Railways.” Its operating ratio improved from 107.39 in 2021-22 to only 98.10 in 2022-23. One of the reasons it struggles to generate enough revenue is the way it operates. A recent report by the Comptroller and Auditor General (CAG) of India for 2021-22, for instance, noted that profit from freight traffic was used to subsidise passengers, but it still resulted in a gap of over Rs 32,000 crore. Although losses on passengers and other coaching services declined during the year, they still amounted to a whopping Rs 68,269 crore. The CAG recommended critical evaluation of passenger operations and adoption of necessary steps to reduce losses. Inadequate availability of resources could severely undermine operational safety. As the CAG noted, appropriation to the depreciation reserve fund has been declining over the years, which could hamper the replacement of aged assets.

However, to be fair, the state of railway finances is not entirely of its making. For instance, it does not have full control over passenger fares on the revenue side, and wages and pensions on the expenditure side. While operational efficiency needs improvement, the government must decide how it intends to run the railways. Increasing dependence on the Union Budget will not be the best way forward.