Slow but Steady: Policy interventions by IR to improve operational performance

Policy interventions by IR to improve operational performance

In the past couple of years, the railway sector has received greater attention from the government with the aim of making the system more modern, sustainable, systematic and safe. Indian Railways (IR) has undertaken several initiatives in this direction. The Mumbai-Ahmedabad high speed rail project is currently under way and is scheduled for completion by 2023. IR’s big-ticket project, the dedicated freight corridor (DFC) project, comprising the Western and Eastern DFCs, has achieved 98.7 per cent of the land acquisition. Besides, 97.2 per cent of the total contracts have been awarded as well. The first stretch of the Western DFC from Atela to Phuleri was inaugurated in August 2018. Progress has also been made in the areas of electrification, station redevelopment, and the deployment of digital technology. Despite these developments, issues such as derailments and high operating ratios persist. The share of derailments in total accidents increased to almost 74 per cent in 2017-18. The financial performance of IR has also worsened with the operating ratio reaching 96 per cent in the past year.

Key trends

In Union Budget 2018-19, a capex of Rs 1.47 trillion was allocated to the railway sector. Safety was accorded the highest priority by the government, and to this end, an expenditure of Rs 730.65 billion has been planned during 2018-19, including funds allocated under the Rashtriya Rail Sanraksha Kosh. Further, emphasis has been laid on training and the government has approved the setting up of India’s first Rail and Transportation University in Vadodara, Gujarat.

As of April 2018, IR’s total route km (rkm) stood at over 68,000 km, of which 45 per cent was electrified. Uttar Pradesh accounts for the largest share in route km length at 14 per cent, followed by Rajasthan and Maharashtra, with a share of about 9 per cent each. Meanwhile, as of April 2018, total track km stood at 121,909 km. During 2017-18, around 4,087 rkm was electrified.

As a part of several funding initiatives, IR set up a fund of Rs 350 billion, called the Railways of India Development Fund, with the assistance of the World Bank. It also plans to raise Rs 1.5 trillion from the Life Insurance Corporation of India (LIC) till 2020. Besides, Indian Railway Finance Corporation (IRFC) bonds were listed on the London Stock Exchange and the Bombay Stock Exchange. There has also been an increasing trend in the disinvestment of rail public sector enterprises such as Rail Vikas Nigam Limited (RVNL), IRFC, IRCTC and RITES Limited.

The railway sector has also witnessed an increasing focus on digital technology with the launch of several projects such as Station Wi-Fi, Rail Cloud, Rail SAARTHI, IRCTC-Rail Connect, NICARAN and the SFOORTI app (Smart Freight Operation Optimisation and Real Time Information). Non-fare revenue has emerged as a growing source of revenue for IR, for which a series of polices have been launched such as the Out of Home Advertising Policy, the Content on Demand and Rail Radio Policy, the ATM Policy, the Train Branding Policy, and the Non-Fare Revenue Policy.

Trends in traffic and earnings: While the growth in traffic numbers has mostly remained flat, IR’s freight volume recorded an all-time high of 1,172 million tonnes (mt) in 2017-18. The year-on-year growth stood at 5.9 per cent, as compared to 0.4 per cent during 2016-17. With respect to passenger traffic, ridership on IR increased for the first time since 2012-13, from 8.15 billion in 2015-16 to 8.22 billion in 2016-17. The increasing trend continued in 2017-18.

Freight earnings recorded an increase of 8.7 per cent during 2017-18 as against a decline of 4.31 per cent in 2016-17, after registering a growth of 3.42 per cent in 2015-16 and 12.73 per cent in 2014-15. Meanwhile, passenger earnings too have shown a positive rate of growth. In 2017-18, IR recorded a growth in passenger earnings of 4.1 per cent against 4.73 per cent in 2015-16 and 15.3 per cent in 2014-15.

Improvements in fixed assets: With respect to expansion works, there was a 50 per cent increase in track renewals from 2,926 km in 2013-14 to 4,405 km in 2017-18. Moreover, there has been a total switchover to the production of safer Linke Hofmann Busch (LHB) coaches. During 2017-18, interlocking systems were provided at 208 stations, registering a growth of 26 per cent over the previous year. In addition, the entire network in the north eastern region has been converted to broad gauge and rail connectivity has been established with Meghalaya, Tripura and Mizoram.

Financial trends: A dismal growth in internal resources coupled with mounting pressure arising from successive pay commissions have resulted in a drain on IR’s finances, causing a rise in operating ratios. While during 2006-07 IR achieved a cash surplus of about Rs 200 billion, 2008-09 onwards the operating ratio started increasing due to an increase in staff costs and pensions consequent upon the implementation of the recommendations of the sixth pay commission. In 2017-18, IR reportedly clocked an operating ratio in the range of 96-98.5 due to pressures arising out of the seventh pay commission commitments. The average annual capital expenditure in 2014-18 was more than double the average during 2009-14. IR spent almost Rs 1.2 trillion on capital investment in 2017-18 (revised estimates).

Recent developments

IR has constituted several new organisations such as the Rail Development Authority, which will be responsible for determining tariffs and creating a level playing field for various stakeholders, and the Special Railway Establishment for Strategic, Technology and Holistic Advancement to cater to the future technology needs of the sector. On the policy front, the Water Management Policy was launched in 2017, with an aim to curb wastage of water and reduce expenditure on fresh water. Further, the Catering Policy was introduced in February 2017, mandating the unbundling of the current catering services on trains.

Passenger segment initiatives: In the passenger segment, several premium trains such as Humsafar, Tejas and Antyodaya and coaches such as Deen Dayalu and Anubhuti, with improved passenger amenities, have been introduced. For improving passenger amenities, facilities such as VIKALP, alternative train accommodation scheme, Project Swarna, to upgrade the condition of Rajdhani and Shatabdi express trains, paperless unreserved ticket booking through mobile phones, setting up of Yatri Ticket Suvidha Kendras, and a Rail MADAD app to completely digitise the complaint management system were introduced, among several other initiatives.

Freight segment initiatives: In the past two years, several initiatives were taken in the freight segment to improve the ease of doing business. Some of these were Mission Raftaar, aimed at doubling the average speed of freight trains; a liberalised Private Freight Terminals (PFT) Policy and Station-to-Station Freight Rate Policy; the Long-Term Tariff Contract Scheme to establish long-term contracts, ranging between three and five years, with customers for guaranteed incremental revenue for IR; the roll-on roll-off scheme to carry loaded trucks on goods trains; and the SFOORTI app to help freight managers better monitor and manage their freight business using geographic information system (GIS).

Key safety initiatives: In order to increase levels of safety, several initiatives have been introduced by IR. These include train protection and warning systems on 342 rkm and online monitoring of rolling stock systems. Besdies, from 2018-19, IR is manufacturing only LHB coaches, which are known to reduce chances of derailment as they have superior design features.

Going forward

The railway sector will continue to witness strong growth over the next few years. Significant investments will be required for the modernisation of track infrastructure, station redevelopment, acquisition of rolling stock, line electrification and installation of new signalling technology. Since government funds are limited, IR plans to tap off-budget funding sources through low-cost pension and insurance funds for a 20-30-year period.

Big-ticket projects such as the development of DFCs, the induction of high speed trains, and station redevelopment will go a long way in improving the modal share of the sector. Going forward, the implementation of the recent policy reforms on the ground too will play a significant role in realising the sector’s potential.