What the railways cost PDF Print E-mail
Friday, 25 February 2011 00:00
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When railway minister Mamata Banerjee unveils her budget proposals later today, much will be made of how she refused to bite the bullet on subsidies, of how she continues to subsidise passenger traffic, possibly even the details of the trains she will start from West Bengal will be flagged. As will be her inability to pay dividends this year, possibly the inability to provide for depreciation, the worsening operating ratio; even her clout in the UPA will be under scrutiny, to see if she gets the budgetary support she has asked for—Rs 39,600 crore as compared to the Rs 15,875 crore in the last general budget. Attention will also be focused on the sharp fall in the efficiency of capital used—the capital output ratio, or capital employed for each NTKM (net tonne kilometre), has gone up by almost a third in the period between March 2005 and March 2009, which indicates that the efficiency in the use of capital has declined. The NTKM per employee, which shows the manpower productivity rates in freight haulage, in Indian Railways was only 0.34 million in 2007 as compared to 1.07 million in China and 15.08 million in the US. And the NTKM per wagon day, an indicator of asset utlisation, also compares poorly with India’s number being just 6,344 million as compared to 10,608 million in China and 16,251 in the US.

All of this is very important, but what invariably gets missed out in this analysis is the heavy cost the Railways are extracting from India Inc. Even though the Railways are running at a loss, the lion’s share of the passenger subsidy, and the operating inefficiencies, are borne by India Inc, which pays a much higher freight rate than is justified—this, of course, is the main reason why the Railways is losing market share to road, from a 53% share two decades ago to just 30% today. Since the Railways lose heavily on passenger traffic (the ratio of passenger tariff to freight tariff in India is 0.33 in comparison with 1.3 for China, 3.07 for Germany and 11.06 for the US), this is made up by overcharging on freight (on average, Indian freight rates are twice that of China, and productivity a third). In the case of coal, for instance, the Railways charged Rs 13,134 crore as freight a few years ago on a total of Rs 30,660 crore of coal produced by Coal India, making this one of the most expensive forms of freight anywhere in the world. Put another way, you could argue that if the Railways didn’t overcharge on freight, Coal India would be a healthy company, and Indian coal would actually be economical to use. It is this burden that should be the yardstick to judge the Railways by.

Last Updated ( Thursday, 22 March 2012 06:26 )

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