Indian Railways, the state-owned transport sector behemoth which alone accounts for over a tenth of the infrastructure investment in India, has seen a major erosion of finances during the current financial year, ending March. Railways’ earnings, from freight and passenger traffic put together, have taken a hit of over Rs 4,000 crore between April and December 2010.
The financial crunch within the railways can be gauged by a worsening operating ratio — the sum of money spent to earn Rs 100 — that has come under severe strain in the past two years. With two months still remaining for the financial year to be over, the ratio has crossed 95 per cent, higher than 92 per cent estimated during the Budget.
Freight earnings have been impacted this financial year, owing to a reduction in loading of iron ore for export, the largest contributor to railway freight revenues. “There is a shortfall of 13.86 million tonnes (mt) to the end of December 2010,” the official said. Considering an Yield per Million Tonne value of Rs 180 crore, the impact on earnings has been as high as Rs 2,500 crore.
Its passenger earnings have also taken a hit of an additional Rs 1,500 crore due to factors like escalation in Naxal activities in many states and agitation by Gujjars, which it considers “beyond control”.
The crunch in traffic revenue, coupled with an additional annual outgo of over Rs 15,000 crore on account of salaries and wages of employees following implementation of the Sixth Pay Commission recommendations, has hurt the resource availability for capital investment. “The additional resources that would have been available for Plan expenditure are of the order of more than Rs 62,000 crore in 2008-09, 09-10 and 10-11 if the impact of the pay commission, post-budgetary hikes and impact on earnings beyond the control of railways are considered,” said a senior official from the railway ministry.
The impact of the recommendations of the Sixth Pay Commission alone have resulted in an outgo of Rs 55,000 crore for arrears, pay and pensions in the three years. With employees’ salary burden weakening finance availability, the ministry is now crying foul, asking for a permanent settlement of the issue. “The railways are financially hit every time the pay commission’s recommendations are implemented by the government. It happened after the fourth and the fifth pay commissions also. Some mechanism has to be put in place to take care of the huge impact after every pay commission,” the official said.
Consequently, its operating ratio has increased from 75.9 per cent in 2007-08 to over 95 per cent currently, owing primarily to the impact of the sixth pay commission, according to the ministry. After the fifth pay commission was implemented, the ratio had also gone up to 90.5 per cent. It later came down to 75.9 per cent in 2007-08, before increasing again to over 90 per cent in 2008-09, when the railways had to pay 40 per cent of the arrears to employees. In 2009-10, the ratio increased further to 95.3 per cent, as 60 per cent of the arrears were paid.
The ministry has also blamed “post-budgetary” factors that have impacted its working expenses by more than Rs 3,400 crore. “The includes Rs 1,000 crore hit due to multiple hikes in price of high-speed diesel oil, Rs 1,500 crore impact due to implementation of the Modified Assured Career Progression scheme and Rs 250 crore impact of increase in power tariff by State Electricity Boards,” the official said.
There are concerns within the ministry over the achievement of the current fiscal year’s target of Rs 94,765 crore for traffic earnings. During the first three quarters of the current financial year, the railways managed a revenue earning of Rs 67,800 crore, around 70 per cent of the target.
While this was a 7.7 per cent increase as compared to the earnings during the same period last year, the growth in earnings has come down from 11.4 per cent in 2008-09 to 9.1 per cent in 2009-10. The ministry is, however, confident of meeting the current financial year’s target earning on the back of positive growth in parcel loadings and fertiliser and foodgrain segments.
