Expert Speak India Matters
Published on Mar 06, 2020
Enhancing asset productivity: Key to better Indian Railway finances

The Indian Railways is suffering from an acute crisis of managing their finances for FY 2019-20. As per the monthly evaluation report for December 2019, the Railways is staring at a revenue shortfall of INR 240 billion. Also, their working expenditure has already risen by around three percent till December 2019. It seems that the Railways will not be able to achieve its stated operating ratio of 95 percent this fiscal, which has also been confirmed by the top management. The operating ratio for the year 2017-18 was at 98.4 percent which was the worst in a decade. The operating ratio, for the current year is hovering in the perilous region of 110 percent, which means that to earn Rs. 100, IR has to spend Rs. 110.

Table 1: Indian Railways Finances (2014-15 to 2018-19)

Year Total Working Expenditure (INR billions) Gross Traffic Receipts (INR billion) Net Revenue Receipts (INR billion)
2014-15 1,429.96 1,567.11 168.38
2015-16 1,478.36 1,643.34 192.28
2016-17 1,590.30 1,652.92 49.13
2017-18 1,758.34 1,787.25 16.65
2018-19 1,847.80 1,899.06 37.73

Tabulated based on Indian Railways Year Book for the year 2015-16, 2017-18, 2018-19

The sixth pay (2006) and the seventh pay (2016) commissions have dented IR’s capacity to generate revenue surplus year after year since their implementation. IR has about 1.27 million employees and about 1.5 million pensioners who end up demanding INR 1,344 billion and INR 500 billion respectively. This payment to staff (serving and retired) has depleted the fund reserve of IR. Hence, there is a need for the railways to rebuild its internal reserve fund. Traditionally, IR has been increasing its freight fares to subsidise its passenger fares. With one of the highest freight rates in the world, IR is losing its grip on freight movement since road transport is cheaper and is becoming the preferred mode of transport. IR is also losing the creamy AC passenger traffic to civil aviation. Growth in both, passenger and freight transport has been low since the past few years.

On the other hand, the IR has been investing substantial amounts of capital to augment its assets since the past few years. The total investments have climbed to a whooping INR 5,736.42 billion in 2018-19 from INR 3,687.58 billion in 2014-15. The capital expenditure for the year 2020-21 is pegged at INR 16.1 billion. This is spent primarily on creating assets like procuring rolling stock (locomotives, bogies and wagons), new line and multiple line projects, electrification, etc. It is now expected that this ongoing investment starts showing results in the form of improved mobility and enhanced transport output.

The bulk of capital goes into creating new and multiple lines. Route doubling projects are undertaken in sections where there is proven dearth of capacity and more traffic is waiting. Whenever a doubling project is completed, there should be a distinct relief in congestion on that route leading to better quality of service, shorter run times and enhanced customer satisfaction. This should convert into more demand from freight customers. Similarly, completion of new lines should lead to increased rail traffic in both passenger and freight.

Another chunk of the investment flows into manufacturing of rolling stock – locomotives, coaches and wagons. To increase the transport output, IR is manufacturing and procuring higher horse-power locomotives, higher axle-load wagons and superior coaches to carry more passengers. To earn a profit, the IR must make full use of the hauling power of locomotives and the higher payload in wagons and coaches, to achieve a higher density of traffic per kilometer of track.

But productivity does not seem to be rising. After nearly four decades, the quantity of freight loaded has plateaued. The average distance of transport for these goods (known as ‘lead’) is also decreasing, further resulting in lower earnings. Also, passenger traffic is not rising at expected levels. This shows that most of the investments have failed to realise their potential leading to low productivity.

It is therefore imperative for IR to act on its asset productivity. A few of these indices are considered relevant to the issue of assessing how IR is performing. These indicators focus on freight movement since the freight business is the key source of income for IR. The first and foremost is wagon turn around (WTR) which indicates the time that elapses between successive loading of wagons. It is used in gauging the mobility of the rolling stock and demand for rail transport. A drop in either of these will increase the WTR, resulting in reduced freight loading and earnings. As seen in Table 2, the WTR is constantly hovering around 5 days.

Another operating index of importance is NTKMs (Net Tonne Kilometres) per wagon-day that gives an indication of how well wagons are utilitsed. As it accounts for only net tonnes, hence, any increase in empty wagon-kilometre will weaken this parameter. This unit reflects the extent to which the capacity of a wagon has been utilised in moving traffic. It denotes not only the movement of the wagon, but also the percentage of loaded wagon-kilometrage and the load-per-wagon. Since, freight charges are levied in terms of tonne-kilometre, this unit is a reliable marker for assessing the earnings of a system. As seen in Table 2, the reducing trend of this indicator shows that the finances of the system are under stress.

The third most significant operating index is NTKMs per engine-hour in use, which combines the performance of both wagons and locos and has a direct bearing on the profitability of IR. A locomotive is the costliest movable asset that the IR acquires. An increase in this parameter indicates better utilisation of IR’s rolling stock, since there is bound to be a higher density of trains on the tracks. Ultimately, any increase in NTKM per engine-hour reflects better profit margins. Table 2 clearly denotes a reduction in this parameter over the years.

Table 2: Asset Productivity Parameters for Indian Railways (2014-15 to 2018-19)

Year Lead (km) Wagon turn-round (days)* NTKM/wagon-day NTKM/engine-hour
2014-15 622 4.98 8,113 18,605
2015-16 594 5.18 7,510 17,507
2016-17 561 5.32 7,359 16,337
2017-18 598 5.21 7,405 17,474
2018-19 605 5.00 7,747 16,571

*lower WTR results in better productivity

Tabulated based on Indian Railways Year Book for the year 2015-16, 2017-18, 2018-19

Railways must pinpoint the reasons for the drop in these three indices and chalk out a strategy to reverse the trend. A suggested course of action would be to make a list of traffic works completed in the last four years. The foremost among these are the doubling projects, completion of which, multiplies the capacity of that route. There is a need for focussed investments in doubling and new line projects which are currently undertaken in a fragmented manner. There are many such projects in the country for which only a certain part of a section gets completed in a year instead of focussing on the entire route. As a result, it only ‘shifts’ the point of congestion along the route. Resolving this situation shall lead to proper flow of benefits.

Additionally, improved signalling system, electrification of a route and removal of level crossings will also provide relief and immediately improve the mobility on that route. A combined assessment of these works should be matched with the declared improvement in the carrying capacity of that route.

High horsepower locos with superior technology, latest wagons and coaches which are fit to run at 100 kmph have now been inducted in the system. With higher speeds, there is a need to redraw the running time for all types of trains so as to increase their speed. This shall create further capacity on the network to run more trains. The average speed of passenger and freight trains has not increased since decades.

The huge investment made in IR must support a considerable growth in its freight business which is the prime source of IR’s internal revenues. If the expected relief is not materialising on ground, it calls for an investigation on how investments are planned and should highlight flaws, if any. All zonal railways need to undertake an asset productivity test review which shall reveal the major reasons for drop in productivity indices.

The IR today lacks a freight working timetable, which, if implemented, would help in planning of operations on the network. Another sore point is capacity building of IR operating staff. Loco pilots driving superior technology locomotives (both diesel and electric) must be trained properly to get the best out of these assets.

Assessing the railway asset productivity is the need of the hour for IR to raise their internal reserve fund. All useful capital investment should be directed towards increasing the capacity in the system to handle higher volumes of traffic, aimed at enhancing the throughput of the system.

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Ameya Pimpalkhare

Ameya Pimpalkhare

Ameya Pimpalkhare is an Associate Fellow at ORFs Mumbai Centre. He works on the themes of energy and transportation. His key research interests include: sustainable ...

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