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Higher fuel cost, low passenger numbers to pull down Railways performance this year

Railways considering cutting Plan outlay for 2013-14 by over Rs 5,000 crore or about 8%

Anusha Soni  |  New Delhi 

The finances of the Indian Railways are not in good shape. Buffeted on the one hand by increased expenditure and low earnings on the other, the Indian Railways have begun mulling the unthinkable - to cut the Plan outlay for 2013-14 by over Rs 5,000 crore or about 8% of its ambitious outlay of Rs 63,363 crore.

The twin pressure of increased expenses and low income will also result in a reduction in surplus generation by about 16%, amounting to Rs 2,000 crore.

Worse,the allocation to Depreciation Reserve fund and Capital Expenditure fund is set to be further scaled down by over 10% from the combined targeted budget allocation of Rs 12,934 crore.

The major reason is the declining passenger volumes and rising fuel costs. According to experts, the Fuel Adjustment Component imposed last October did not pass the entire hike in the costs to passengers. Also, the time lag to recover the fuel costs under the FAC in freight has resulted in under-performance.

According to senior Railway officials, the earnings of the Indian Railways have gone down by Rs 5,000 crore, a dip of 5.3%. At the same time the expenditure on staff, fuel bills has gone up by about Rs 4,900 crore, a spike of about 16% compared to the expected budget expenditure on fuel and staff.

The Railways reported a higher than targeted operating ratio of 88% by December 2013. It had expected to close the year with the targeted operating ratio of 87.8% in the budget. Operating Ratio is what the Railways has to spend for every one hundred rupees it earns. Lower the share, the better is the Railways' financial health.

Allocation to key projects like Eastern Arm of dedicated freight corridor for which Railways had planned to allocate Rs 4,000 crore is also likely to suffer.


The major worry on the revenue side has been the fall in the passenger booking by 4% compared to last year. The number of bookings were down by 122 million compared to last year for April-December 2013. But the hike in the passenger fares by over 20% in January and up to 3.5% under Fuel Adjustment Component in October boosted the passenger revenues by about 20%.

Still the revenue is short of Rs 4,000 crore, by about 12% less than the estimated budget targets. The fall in the passenger volume has made it difficult to take care of the ratio of volume of passengers to the fuel consumption. While the volumes kept decreasing, the fuel costs rised sharply, aggravating the losses.

Passenger operations account for about 55% of the total fuel cost.

Officials said the number of passengers going down is an aberration in the history of passenger operations. However, experts pointed out that the fall is a sign of reduction in the overall economic activity and low consumer spending and is expected to revive soon.

The freight side has performed well if one considers the overall economic slowdown the country is facing. According to the white paper on Indian Railways, the growth elasticity for Railway freight movement to overall GDP changes is estimated at 1.25%. Hence, for every 1% growth in GDP, Railways should grow by 1.25%. On this yardstick, the economy has grown at less than 5% and the freight volumes have managed to grow at 4.70% in April-December period. This is well in line with the budget targets.

The freight earnings for April-December period grew by 10.25% though they were expected to grow by 9% at beginning of the year. The volume was expected to be 40 million tonne more than the last year. Till December, the Railways carried over 34 mt more compared to the last year. “We expect to surpass the budget loading targets this year," said D P Pande, Member Traffic, Railway Board.

One of the reasons that the earnings have come down is also because the Railways expected about Rs 6,000 crore to come from commercial exploitation of land reserves. But nothing has materialised for them, said Vishwas Udgirkar, Partner, Deloitte Consulting India.


With the Railways spending about 22% of its earnings on fuel and 60% on staff, an increase in both these costs by about Rs 5,000 crore has come as bad The Railways had expected the fuel bill to be around Rs 24,000 for 2013-14, which increased by over 15%. The hike was not proportionate to the volume that the Railways had expected in the passenger segment.

Fuel Adjustment Component only partly took care of the diesel price increase of 7.3% (February-July) and power cost hike of 15.5% in the passenger operation, according to Railway officials.

FAC, however, brought a major respite for freight and passenger by adding about Rs 6,600 crore to the earnings.

The hike in passenger fare is far from making up for annual loss on passenger operations that is expected to be about Rs 25,000 crore for this financial year.

The Railways had absorbed Rs 850 crore of extra fuel bills because of 39% diesel price hike under bulk diesel pricing. The further hike was only partially taken care of as the fares for second class went up by only Rs 5 and no hike was made in the sub-urban sector, said a senior Railway official.

Experts also claim that there was a time lag in recovering the fuel costs. Even in the last financial year, the planned expenditure was cut by about Rs 8,000 crore. The then Railway Minister Pawan Kumar Bansal had cited ‘increase in appropriation to pension funds’ as one of the reasons for cut.

Budgetary Estimates 2013-14 Actual for April-December 2013
Passenger Earnings Rs 42,210 crore Rs 27,000 crore, Rs 4,000 cr less than proportionate target
Freight Earnings Rs 93,554 crore Rs 67,116 cr, Rs 884 cr less than proportionate target
Plan outlay Rs 63,363 crore Plan size to be cut by over Rs 5,000 crore for 2013-14
Operating Ratio 87.8 88
Contribution to Depreciation Reserve fund Rs 7,500 crore Expected to be down by over 10 per cent
Money to be raised through PPP Rs 6,000 crore -----------------

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First Published: Fri, January 31 2014. 12:25 IST