Freightonomics to derail Indian Railways’ finances

In his budget, rail minister Suresh Prabhu has promised to address the concerns of all stakeholders – passengers, employees and industry. By leaving fares intact, he has given passengers cause for cheer. But the same cannot be said about freight.

In his budget, rail minister Suresh Prabhu has promised to address the concerns of all stakeholders – passengers, employees and industry. By leaving fares intact, he has given passengers cause for cheer. But the same cannot be said about freight.

Freight accounts for 66% of railways’ revenue, and these numbers do not bode well for India’s largest public sector undertaking, or for the economy.(AFP File Photo)

Against the budgeted 10% increase in freight earnings, reality stops at 5.5%. Volume growth is even more dismal — 1%, against a targeted 8%.

Freight accounts for 66% of railways’ revenue, and these numbers do not bode well for India’s largest public sector undertaking, or for the economy. The railways’ share in the national freight basket is sinking, and causing a loss to the exchequer of 4.3% of the GDP, according to a National Transport Development Committee report.

For the past few years, a slowing economy and high freight have rendered the railways uncompetitive. By hiking freight by 4% in the last one year, the ministry has not helped.

Indian Railways follow a policy of cross-subsidisation of low passenger fares with high freight rates. In fact, the budget showed a loss of Rs 30,000 crore due to subsidising of passenger fare in 2015-16. Passenger fares in India are among the lowest globally, while freight is abnormally high. For example, rail freight costs 10% more than the road equivalent for a 1,500-km journey.

“Freight has to be brought back to railways by increasing capacity and reducing rates” said Raghu Dayal, former CMD of Container Corp of India Led (Concor).

“The policy should be a combination of service and pricing to keep railways competitive” said Manish Agarwal, leader, infrastructure at PwC.

Industry stakeholders are optimistic. “Suresh Prabhu is a known reformist and he will introduce policies to turn around the freight business of Indian Railways,” Titagarh Wagons said.