Long-term contracts for railways is the way to go
Though the finances of the Indian Railways continue to remain in shambles because of a slow economy—ensuring that it has consistently missed targets for both freight and passenger traffic—and the huge pay burden imposed by the Seventh Pay Commission, railway minister Suresh Prabhu is making important moves in trying to steer the national carrier. Various high-speed and better appointed trains have been brought in to increase passenger revenues while keeping the base fares largely untouched—though fares on the higher-speed Gatimaan Express are around 47% higher than those of the older Shatabdi—and once the light-weight Talgo is introduced on the Delhi-Mumbai route, for instance, its shorter duration means the train can leave later at night and hope to catch some of the business traffic as well. And now, it appears, similar plans are being made for the freight sector—the biggest change, of course, will take place in another couple of years when the two dedicated freight corridors are in place since the speed of freight trains will really pick up.
With the railways dramatically overcharging on freight in order to be able to subsidise passenger traffic, its share of traffic has been falling steadily; so, one of the things Prabhu is doing is to try and rationalise freight. Earnings from coal have increased marginally, from Rs 48,000 crore in FY15 to Rs 52,000 crore in FY16 and are targeted at R53,685 crore in FY17 and earnings from food grains went down from R8,138 crore in FY15 to R7,731 crore in FY16, and are estimated at R8,085 crore in FY17. As a result, average freight earning growth has come down from 14.5% during FY12 and FY14 to 7.9% for the period FY15-FY17—as a share of overall earnings, the share of freight is down from 67% in FY14 to 64% today.
As part of the new policy, freight rates have been reduced for the first time ever—port congestion charges and busy season surcharge have been dropped and the dual pricing of iron has also been withdrawn, besides measures like opening up of the container sector for more commodities and multi-point loading facility. What is planned instead—this will be tried with cement despatches within the next two months—is long- and fixed-term contracts with clients in return for committed freight contracts. The exact details are yet to be finalised but freight rates could remain constant in this period or they could have a certain share linked to a fuel index—while this provides certainty of costs for producers/transporters, it also ensures the Railways have a steady stream of traffic and allows for better planning as well.