I have been thinking about a problem which railways will face and thinking about writing on it since the end of Feb ‘2016 when the railway budget was presented to the parliament. However, for some reason or the other did not get down to typing this piece earlier and now without any further introduction here it is.
A study of the budget documents of Indian Railways (IR) shows that for the year 2016-17 Railways has projected earnings at about ₹ 1,80,000/- crores a year and the total working expenses of Railways at about ₹ 1,70,000/- crores. About 2/3 (Two third) of earnings amount (about ₹ 120 lakh crores) comes from freight traffic and balance ₹ 60 lakh crores comes from passengers traffic, other coaching earnings and sundry other earnings.
It is a matter of fact that about 80% of the freight traffic (about ₹ 95 lakh crores) moves on the golden quadrilateral – connecting Delhi, Mumbai, Chennai & Kolkata. Once the Dedicated Freight Corridor Corporation of India (DFCCIL) builds the Dedicated Freight Corridor (DFC), this 80% of IRs traffic will move on the DFC. Assuming that only 80% of this traffic will to DFCCIL, an earnings of about ₹ 80,000 crores (80% of 98,000 cr) will go from IR to DFCCIL and IR will be left with an earnings of only about ₹ 1,00,000/- crores. Consequent reduction of railway expenditure will be only about ₹16,000-₹20,000 crores (because direct cost of fuel accounts to only about 20%). Thus railways will be left with a net yearly shortfall (loss) of about ₹50,000/- crores.
One can argue about the above and rework these figures and say that the net shortfall may be only about ₹40,000/- crores or so. However, the fact that IR will face a huge financial crisis cannot be denied. How will railway generate additional income of this order in the next three-four years is not very clear but it is clear that the impact of Pay Commission recommendations and repayment of interest and principal amount for the loans taken earlier and that IR is going to take from LIC etc. will also have to be factored in and all these will make this situation worse. It is not clear what efforts are being made or will be made to tackle this situation.
When I mentioned the above calculations to a very well recognized expert of transport sector who has worked extensively on railways, he quite agreed with me on this crisis and said that it was a clear writing on the wall. I asked him how Senior Management of IR will manage the system in such a scenario. He said, “Are they managing it today?” He later explained that the job of top management was not just taking care of the day-to-day affairs of the organization but it is to ensure that happenings in the environment are taken into account and organization prospers in the long run. He was of the view that the Railway Administration specialized only in crisis management and even in this they tackled only the immediate ones and provided ‘Band-Aids’ – temporary solutions.
Listening to this expert and later discussing it with different groups I was reminded of an incident. Once I was travelling in a bus on difficult hilly road in Uttrakhand. At most places, particularly at sharp turns, the road was rather narrow and on one side there was mountain and other side a deep valley. I was sitting on the front seat across the driver and would get scared each time we came to a sharp turn. At the next stop, while having tea, I asked driver whether he ever got scared while negotiating such roads. The driver, sipping his tea said, “aisee jagah par mai apanee aankhein band kar leta hoon. fir dar nahin lagata. aap bhee kar liya karo” (at such points I close my eyes then I do not feel scared and you too should do the same.).
Having worked in railways for a long time I find it difficult to follow driver’s advice and close my eyes.
A study of the budget documents of Indian Railways (IR) shows that for the year 2016-17 Railways has projected earnings at about ₹ 1,80,000/- crores a year and the total working expenses of Railways at about ₹ 1,70,000/- crores. About 2/3 (Two third) of earnings amount (about ₹ 120 lakh crores) comes from freight traffic and balance ₹ 60 lakh crores comes from passengers traffic, other coaching earnings and sundry other earnings.
It is a matter of fact that about 80% of the freight traffic (about ₹ 95 lakh crores) moves on the golden quadrilateral – connecting Delhi, Mumbai, Chennai & Kolkata. Once the Dedicated Freight Corridor Corporation of India (DFCCIL) builds the Dedicated Freight Corridor (DFC), this 80% of IRs traffic will move on the DFC. Assuming that only 80% of this traffic will to DFCCIL, an earnings of about ₹ 80,000 crores (80% of 98,000 cr) will go from IR to DFCCIL and IR will be left with an earnings of only about ₹ 1,00,000/- crores. Consequent reduction of railway expenditure will be only about ₹16,000-₹20,000 crores (because direct cost of fuel accounts to only about 20%). Thus railways will be left with a net yearly shortfall (loss) of about ₹50,000/- crores.
One can argue about the above and rework these figures and say that the net shortfall may be only about ₹40,000/- crores or so. However, the fact that IR will face a huge financial crisis cannot be denied. How will railway generate additional income of this order in the next three-four years is not very clear but it is clear that the impact of Pay Commission recommendations and repayment of interest and principal amount for the loans taken earlier and that IR is going to take from LIC etc. will also have to be factored in and all these will make this situation worse. It is not clear what efforts are being made or will be made to tackle this situation.
When I mentioned the above calculations to a very well recognized expert of transport sector who has worked extensively on railways, he quite agreed with me on this crisis and said that it was a clear writing on the wall. I asked him how Senior Management of IR will manage the system in such a scenario. He said, “Are they managing it today?” He later explained that the job of top management was not just taking care of the day-to-day affairs of the organization but it is to ensure that happenings in the environment are taken into account and organization prospers in the long run. He was of the view that the Railway Administration specialized only in crisis management and even in this they tackled only the immediate ones and provided ‘Band-Aids’ – temporary solutions.
Listening to this expert and later discussing it with different groups I was reminded of an incident. Once I was travelling in a bus on difficult hilly road in Uttrakhand. At most places, particularly at sharp turns, the road was rather narrow and on one side there was mountain and other side a deep valley. I was sitting on the front seat across the driver and would get scared each time we came to a sharp turn. At the next stop, while having tea, I asked driver whether he ever got scared while negotiating such roads. The driver, sipping his tea said, “aisee jagah par mai apanee aankhein band kar leta hoon. fir dar nahin lagata. aap bhee kar liya karo” (at such points I close my eyes then I do not feel scared and you too should do the same.).
Having worked in railways for a long time I find it difficult to follow driver’s advice and close my eyes.
