Financial engineering makes Rlys numbers look fine

Desperate times call for desperate measures. The popular saying works for Indian Railways: it has undertaken certain fiscal measures to present its operating ratio, which is breaching the 100% mark, as being under control. That FY2018-19 was full of glaring lapses on many fronts, including falling punctuality rate, high equipment failures and of reforms shunted to the slow track have become obvious.

As the curtains drew on FY19, the national transporter came out with a new policy in the last month of the fiscal, to undertake financial engineering by showing next year’s income as revenue for the current fiscal in a bid to show that its financial performance aligned with the interim budget numbers.

Facing a dismal scenario on the financial front, Railways came out with the Freight Advance Scheme, a new policy notified on March 9 this year, asking major freight customers to avail tariff freeze for a year against payment of advance freight to railways.

Freight earning is crucial for Railways as the passenger service is cross-subsidised from it. Despite many new services like Tejas, Humsafar and the recently introduced Vande Bharat Express, the loss in the passenger business is about Rs 30,000 crore a year. Besides, the non-fare revenue from the station redevelopment project and advertisements has not been as per expectation.

In his budget speech, Minister Piyush Goyal had announced in the Lok Sabha that Railways would aim to hit an operating ratio (OR) of 96.2% for 2018-19. The ratio — a metric that describes an organisation’s expenses as a percentage of revenue — is a measure of its financial health. However, the actual scenario is far from normal, with the OR hovering above 100% as FY19 ended. The OR had touched 110.83% by the end of December 2018 and improved to 105.4% by the end of January 2019. Railways needed at least Rs 14,000-15,000 crore more to keep the OR under the century mark.

According to the Financial Directorate, last year too, Railways had initiated similar special measures to earn revenue in advance from NTPC and IRCON, another railway PSU, to make the OR presentable. The March 9 policy has now made this a regular business practice for Railways. The practice of advance revenue earning is already prevalent in the passenger business as Railways earns a significant part of its revenue through advance ticket booking 120 days before the journey.

The new freight policy envisaged that the customer should have a minimum annual freight spending of Rs 500 crore to avail the scheme. There are 47 such entities, like NTPC, SAIL and Railways PSUs such as CONCOR. The aim was for Railways to raise Rs 10,000 crore from NTPC and Rs 4,500 crore from CONCOR. It had received Rs 3,000 crore from CONCOR as on March 26 and the rest was expected in due course. NTPC is also in the process making the bulk advance payment.

Higher operating ratio

The OR is a gauge of operational efficiency that measures expenses as a proportion of revenue. Besides the working expenses, there are other expenditures — including pension liability, expenditure of the Railway Board and Railway institutions, which far exceed earnings, resulting in a higher OR. A higher ratio also indicates lower ability to generate surplus funds that could be used for capital investments such as laying new lines and manufacturing more coaches.

Goyal made the highest-ever capital expenditure allocation of Rs 1.58 lakh crore for the Railways in the interim budget this year, while leaving passenger fares and freight rates unchanged ahead of general elections. He allocated Rs 7,255 crore for laying new lines, Rs 2,200 crore for gauge conversion, Rs 700 crore for doubling of tracks,
Rs 6,114.82 crore for rolling stock and Rs 1,750 crore for signalling and telecom.

The capital support from the budget for the Railways is proposed to be Rs 64,587 crore in FY20. The gross budget estimates under revenue for the year is Rs 2,72,705.68 crore, recording an increase of Rs 22,854.67 crore over the revised estimates for FY19.

Although the route electrification work, cleanliness at rail premises and passenger amenities have improved to some extent, the dedicated freight corridor (DFC), the national transporter’s flagship project, is still far away from even partial commissioning. The commissioning of Western and Eastern DFC is crucial for attracting more freight business.

Despite the focus on speed to reduce the travelling time between the two cities, the proposed semi-high speed projects on Delhi-Chandigarh, Delhi-Bhopal, Delhi-Kolkata and Delhi-Mumbai are yet to take off.

In FY19, the punctuality rate fell to 68.91% as against 71.55% in FY18 and 76.67% in FY17, according to Railways data. The deterioration in punctuality performance is a direct indicator that an ever increasing number of trains are running behind schedule, causing great inconvenience to passengers.

While North Central Railway is the worst performer, with 47.11% followed by 54.74% in South East Central Railway and 59.47% in Northern Railway, East Coast Railway has recorded 75.34%, a slightly improved performance as compared to the last fiscal.

Despite several precautionary measures, Railways has witnessed a significant number of equipment failures, including rail fracture, train parting, signal and weld failures in the current fiscal. There were five fire incidents, 43 derailment cases, six accidents at level crossings — three each at unmanned and manned level crossings — in the current fiscal. While 97,520 cases of signal failure were registered, there were 2,313 cases of overhead electric (OHE) failure reported up to January this year.

According to the data, coach detachment was reported 1,302 times, wagon detachment 2,059 times and train parting cases 643 times across the country up to January this year, causing disruptions in train movement.

(The writer is a senior journalist based in Delhi)