Bustling with activity during the past year (2016-17), the railway sector is witnessing a major overhaul of India Railways (IR), ranging from the introduction of a slew of passenger and freight policies to the overall restructuring aimed at increasing its modal share and bringing growth on track. The year also witnessed the first-ever merger of the railway budget and Union budget. Regarding performance, overall freight traffic stood at an all-time high, while passenger traffic recorded its first hike in ridership since 2012. Freight earnings, on the contrary, declined, while passenger earnings continued to grow. Industry experts share their views on the sector’s progress, the impact of key initiatives, unresolved issues and the way forward…
What has been the progress in the railway sector in the past one year?
In the past one year, domestic container traffic has seen a growth of 7 per cent, a reversal from the downward trend experienced over the past two years. However, export-import container traffic witnessed a negligible growth of 1.8 per cent, against the backdrop of a massive growth of over 17 per cent recorded each year in 2013-14 and 2014-15, and a decline in growth of 3.2 per cent recorded during 2015-16.
The overall performance of rail container traffic over 2016-17 indicates that the days of high growth in the sector, as seen prior to the past three to four years, is a thing of the past. It also highlights the need for the government to reorient its policies to achieve the vision of increasing containerisation in the country, and making it comparable to the developed nations of the world. If this is not achieved, it will nullify the efforts and huge investments being incurred by IR in setting up the western dedicated freight corridor (DFC) to connect important ports with the hinterland.
The merger of the railway budget with the general budget has been a major event in the past year. The budget merger will have a far-reaching impact on the functioning of IR. There is also an urgent need to enhance railway safety and the creation of a dedicated safety fund has been the first important step in this direction. As per IR statistics, coal traffic reduced by 18 million tonnes in 2016-17 as compared to 2015-16. To some extent this was anticipated by the Ministry of Railways (MoR); however, on an overall basis the traffic volume achieved exceeded budget projections. Changes have been made at the organisational level at the Railway Board through the creation of new directorates like the Mobility Directorate and the Non-Fare Revenue Directorate.
IR is trying hard to improve its image and the perception of its passenger amenities. But real improvement happens when balance sheets improve, and this has not yet taken place. Freight traffic has not increased and passenger earnings are way below target. The data on traffic and earnings therefore is not very heartening. The Indian economy is growing at a very high rate and the railways should garner traffic at a rate much higher than that of economic growth, which does not seem to be taking place. We can only hope that major inputs in the areas of infrastructure improvement will remove bottlenecks and propel an increase in traffic. After all, IR is in the business of transportation, which ought to increase for the system to be healthy.
What has been the impact of the key initiatives taken by the government?
Earlier restrictions that curtailed the growth of container traffic, were reviewed by the Railway Board and some positive decisions were taken. The removal of the port congestion surcharge on imports was one such initiative, which, however, had only a marginal impact on import traffic. Another crucial move was to allow more rail terminals to handle domestic container trains. Under this initiative, the use of Category I and Category II goods sheds was allowed, but only a marginal impact was seen. Another key initiative entailed the widening of the commodity basket to include 43 additional commodities under the “freight all kinds” rate. This step too had only a marginal impact on traffic growth. Other initiatives announced during the 2016-17 railway budget were the expansion of the freight basket and the rationalisation of the tariff structure to increase modal share; recapturing traffic through containerisation; opening containerisation to all commodities, barring a few; building terminal capacity; and modifying the tariff structure to make it more competitive. Overall, since the railways has not taken any action on rationalising and reducing tariffs, there has only been a negligible increase in container traffic.
Given the scale and size of the railways, the impact of initiatives takes time to manifest. As per details provided in a written reply in the Rajya Sabha, the non-fare revenue share of IR increased from 3.61 per cent in 2015-16 to 6.28 per cent in 2016-17.
The railways has introduced various initiatives like long-term contracts, double-stack dwarf container trains and roll-on, roll-off services. These are long-term initiatives which have shown mixed results and not much has changed on the ground.
The railways has also taken various initiatives to make travel services better for passengers, but safety has been one of the biggest concerns for IR. While the number of accidents has gone down over the past few years, the absolute number still remains high at over 100 accidents a year. Further, rail freight rates are still higher than those of roads. To increase market share, IR needs to realise that it is not in the rail business, but in the business of transportation, and should partner with the public sector to offer end-to-end solutions to its customers.
What are the key challenges that remain unaddressed?
A key challenge in the sector has been the absence of a level playing field between rail and road freight and haulage charges, and this is essential in order to encourage container movement. Also, no discount has been offered for hinterland rail movement to encourage containerised transport of exim cargo. The biggest challenge for the railways today in setting up new terminals is the cost of acquiring land, which accounts for around 60 per cent of the total cost of a terminal. This, despite all the surplus land available with IR. Another challenge is the biased behaviour of IR towards certain container traffic operators (CTOs). Advantages offered to organisations like Container Corporation of India Limited should be extended to CTOs. A slew of policy changes and initiatives will be required to bring about a change. These include the leasing of surplus railway land for the construction of terminals. Besides, the inter-ministerial Committee (IMC) should deny clearances for new port-side container freight stations only when strong justifications for the same are available. Priority should be given to additional inland container depots in the hinterland by the IMC. The new DFCs should be in line with additional container traffic generated. Finally, rail freight for the transport of containerised cargo should be made competitive with the road sector.
As per statistics published by the MoR, freight earnings reduced by 4.5 per cent in 2016-17 as compared to 2015-16, while passenger earnings increased by 4.5 per cent over the same period. Further, working expenses increased by 10.78 per cent in 2016-17, in comparison to 2015-16. This implies that there needs to be a special focus on cost control measures and the generation of additional revenues through both non-fare box avenues and through modifying the commodity portfolio carried by the railways. While multiple initiatives have been taken by the MoR, an implementation focus is required to navigate them to a successful outcome.
Although IR has progressed significantly both quantitatively and qualitatively over the past few years, the system is, however, still plagued by problems such as rising costs, declining market share and obsolete equipment, which require immediate attention. A lot has been done already, but a lot more is yet to be initiated. The credibility of an organisation with a long and proud history of nation building is seriously being eroded.
IR has to play a dual role of revenue earning as well as meeting social obligations, which are diametrically opposed and thus difficult to reconcile. There are several social obligations of the railways like the need to operate below cost. On the one hand, IR is seen as a commercial organisation, while on the other, it is treated as a social organisation which must perform its social obligations.
What is the sector outlook for the next one-two years?
In the near future, some of the key areas which will be a cause for concern include the unreasonable goods and services tax (GST) rate of 12 per cent levied on rail transport of containers, as against 5 per cent on the movement of containers by road, and a 5 per cent GST rate on the movement of break bulk cargo via trucks. Already this action has led to an adverse effect on domestic container traffic moved by rail, with a decline of 10 per cent witnessed during July 2017 when the GST became effective. Further, the removal of bottlenecks at octroi checkposts will provide a fillip to road transport. Also, high rail haulage charges will continue to adversely impact container rail traffic, especially in the domestic sector. Moreover, a major worry for IR will be the underutilisation of the DFC, which had earlier been justified only through exim traffic to and from ports and the hinterland.
The railways is an environmentally friendly mode of transport. However, its current modal share in India is estimated at around 30 per cent for freight and even lower for passenger traffic. With the implementation of the GST, the cost of road transport has the potential to reduce owing to the removal of entry tax/ octroi, etc. Also, the central government’s Sagarmala programme aims to increase coastal shipping in the country. Thus, in the coming years, the railway sector is likely to see major competition from other transport modes, which will require the railways to come up with innovative models to increase their commodity basket. Safety will be a key factor that will need special emphasis in the next two years. Achieving “zero fatality” is no longer a desirable target, it is a non-compromisable and essential parameter for the railways.
IR transports only 36 per cent of the total goods traffic in the country, as compared to railways having a corresponding share of 48 per cent in the US and 47 per cent in China. While nearly 57 per cent of the total goods traffic is transported through roads in India, the figures stand at 22 per cent in China and 37 per cent in the US.
Over the next couple of years, the stage-wise completion of the two dedicated freight corridors (DFCs) – the western and eastern DFCs – is expected to bring about a paradigm shift in freight operations in the country. However, to achieve the anticipated results, besides DFCs, there is a need to introduce a rail regulator and overhaul the economic model under which the railways currently operates. The industry is expecting the railways to provide an efficient, reliable, safe and cheaper mode of freight movement.
The future should see the railways acting towards improving its financial position while providing transport infrastructure in the country. Further, it should move away from the direct control of the government to a public-private partnership model to enhance managerial effectiveness.
Kamlesh Gupta, President, Association of Container Train Operators
“There needs to be a special focus on cost control measures and the generation of additional revenues through both non-fare box avenues and through modifying the commodity portfolio carried by the railways.”
Rajaji Meshram, Director, Infrastructure and Government Services, KPMG India
“The railways has taken various initiatives to make travel services better, but safety has been one of IR’s biggest concerns. While the number of accidents has gone down over the past few years, the absolute number still remains high.”
Parikshit Nagpal, Head, Rail and Container Terminal Operations, Adani Logistics Limited