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Rlys benefit from Trivedi legacy

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Pre-Budget freight rate increase, done through an executive order, raises revenue on this count by a fourth in the April-June quarter; case for rationalising these charges underlined

If ’ (IR) freight revenue jumped 27 per cent in the April-June quarter, as compared with an 11 per cent rise in the same period last year, it was because former railway minister managed to effect a 20-25 per cent rise ins freight rates through notifications a few days before the presentation of the Railway Budget in March.

Trivedi's reformist Budget had earned the wrath of his party leader, chief , and he had to quit. His successor, , rolled back some of his predecessor's proposals after taking charge. But Trivedi's out-of-Budget move to raise freight rates remained unscathed by Roy's roll-back. For IR, this is proving a welcome relief, as its freight revenue is set to see a substantial increase in a difficult year.

ON TRACK TO GROWTH
Key Figures (Jump in revenue does not tell a complete story)
Freight loading 
parameters
Q1 
2011-12
Q1 
2012-13
% 
variation
Railways earnings 16,507.9 21,028.0 27.38
Loading 233.7 244.8 4.77
NTKM  154,492.0 156,269.0 1.15
Average Lead 661.0 638.0 -3.48
NTKM: Net tonne kilometre
FACTS BEHIND 27 % FREIGHT REVENUE RISE
KEY POINTERS
  • Railways went for a freight rate increase twice in 2011-12
  • Hike across commodities of 20-25 %
  • Overall freight charge levied on commodities from Sept- June (9 months) increased by 6% over and above 20-25% rise
    Busy season charge (hiked from 7%to 10%) and Development surcharge (hiked from 2% to 5%)
  • 1st quarter falls in busy season, so impact on revenues felt because of both hikes.
  • Rate of growth rate in loading in first quarter 2012-13 is 4.8% down from 7% in first quarter 2011-12
  • Rate of growth rate in NTKM in first quarter 2012-13 is 1.15% down from 6.28 % in first quarter 2011-12

IR achieved 23 per cent of its earning and loading targets of 2012-13 in the first quarter. On a loading of 244 million tonnes in the quarter, of the set annual target of 1,025 mt, its earnings were estimated at Rs 21,205 crore out of an annual target of Rs 89,000 crore.

Experts, however, say the sharp rise in freight revenue has only masked the economic slowdown that has already caught up with the railways. The impact is visible in freight loading volumes. Growth in this slowed to five per cent in the quarter ended June, as compared to seven per cent in the same period last year.

An expert, who did not wish to be named, said, "A freight hike is the simplest way of bailing out the railways and it does not require any out-of-box thinking. The railways need to chalk out a long-term strategy to capture the market share it is losing to roads. This euphoria over revenue increase won't last for long, as the railways can't afford to take advantage of being a monopoly forever."

Even the net tonne kilometres in the first quarter has increased only marginally, by 1.15 per cent, down from an increase of 6.3 per cent in the first quarter of 2011-12. The average lead, showing the distance over which the freight is carried, has also fallen by three per cent over the first quarter of 2011-12. The Railways will benefit if more freight is loaded for longer distances. So, net tonne km is the best indicator of performance, said an official.

However, almost 70 per cent of the increase in freight loading in the quarter, of 5.23 mt over the first quarter of 2011-12, is due to coal (+3.6 mt). The commodities which have shown an increase in loading in April-June, compared to the same period last year, are coal, foodgrain (+0.37 mt), pig iron and finished steel (+0.18 mt) and raw material for steel plants (+0.1 mt). Commodities witnessing negative loading as compared to the first quarter of 2011-12 are cement (-0.18 mt), fertiliser (-0.79 mt), petroleum oil products (-0.06 mt), domestic container services (-0.03 mt) and white goods (-0.37 mt).

According to a railway official, “Primarily, the growth in loading is very marginal and the spectacular revenue increase was inevitable, as the railways’ went for a freight hike twice in 2011-12.” Both these increases came outside the Budget. Just a week before the Budget of 2012-13, the Railways went for an across-the-board increase of freight rates, except iron ore for exports, by 20 to 25 per cent.

Apart from this, there was also an increase in the busy season charge from seven per cent to 10 per cent in October 2011. The busy season charge is levied on the base freight rate of commodities. It is levied for nine months – September to June. The development surcharge also increased from two per cent to five per cent. It is levied on the sum total of base freight rate and demand management charges like busy season charge, congestion charge and other supplementary charges.

This also raised the freight rate by around six per cent during the busy season i.e. September to June. This is over and above the 20 per cent rise. So, the cumulative impact is 27 per centand it is fairly reasonable, said an official.

The revenue impact because of the freight rate rise in the first quarter is expected to be comparatively more, since it includes busy season charge.

In the second quarter, this charge will go away and the volumes are also expected to dip because of rains, added the official.

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