Off the track

Service charge waiver to rob IRCTC of profitability

There was much cheer among investors when Finance Minister Arun Jaitley announced, as part of this year’s Budget on February 1, that three public sector railway enterprises – Indian Railway Catering and Tourism Corporation (IRCTC), Indian Railway Finance Corporation (IRFC) and Ircon International – would soon be listed on the stock exchanges. The government holds 100 per cent stakes in the three entities and Mr Jaitley stated that doing so would “foster greater public accountability and unlock the true value of these companies”. He was buoyed by the “overwhelming response” that the exchange-traded fund (ETF) comprising shares of 10 central public sector undertakings had received in the recent past. The decision to list is considered a winner for all concerned — it will provide the government with an avenue to meet its disinvestment target and raise funds to uphold its fiscal deficit promise and, at the same time, provide investors a fantastic investment opportunity. IRCTC, in particular, is a profitable venture. According to its latest annual report for the financial year 2015-16, the government-owned website posted revenues of over Rs 1,500 crore, a jump of 32 per cent from a year ago. 

But, on Monday, as the government started the process of inviting expressions of interest from merchant bankers for divesting its stake in IRCTC, there were growing concerns whether there would be any takers for the listing. That is because another government decision is set to ruin IRCTC’s growth prospects. Ironically, that decision, too, was announced in the same Budget speech. As part of the government’s efforts to incentivise digital transactions and make it cheaper for consumers, the finance minister stated that “service charge on e-tickets booked through IRCTC has been withdrawn”. The statement provided permanence to a waiver that many thought was a temporary measure in the wake of demonetisation. Mr Jaitley claimed that after the waiver, cashless reservations had gone up from 58 per cent to 68 per cent. 

However, a look at IRCTC’s finances confirms how a permanent waiver of the service charge will rob the entity of the one element that makes it a worthwhile investment opportunity. For one, rail ticketing accounted for Rs 551.5 crore of IRCTC’s 2015-16 revenues. Over 2014-15, they have grown by over 100 per cent. When it comes to profit, the internet ticketing segment of IRCTC is the biggest contributor. It earned a profit of Rs 262 crore on its own, while the rest of the segments of IRCTC – departmental catering (loss of Rs 67 crore), tourism (profit of Rs 29 crore), Rail Neer (profit of Rs 17 crore) and licensee catering (profit of Rs 19 crore) – managed to lose Rs 2 crore among themselves. Essentially, IRCTC’s profitability acutely hinges on the service charges it levies and a waiver on this front could make it a non-starter on the bourses. 

Reports suggest the Indian Railways was not consulted before the decision was taken to permanently waive the service charge. Evidently, there are more than a few murmurs of discontent in the railways, and this fiasco points to the haphazard manner in which the government has gone about the twin goals of disinvestment and greater digitisation of transactions in the economy. If the waiver decision is not rolled back then the only thing left for the finance ministry to do is to either allocate money to IRCTC or specify a new revenue stream.