First decline in Indian Railways' losses on social service obligations in five years

Depressed volumes, easing of fuel and traction costs and a minor increase in passenger and freight tariffs are the reasons

Sudheer Pal Singh | New Delhi March 30, 2016 

Indian Railways’ suffered on delivering services below cost of operation, which are part of its social service obligations. Indian Railways registered a decline in losses for the first time in more than six years owing to a combination of factors including depressed volumes, easing of fuel and traction costs and a minor increase inpassenger and freight tariffs.

The new trend signals improving finances even as Rail Minister Suresh Prabhu is struggling to manage the additional burden on staff cost on account of the Seventh Pay Commission recommendations. Fresh data shows Railways suffered losses of Rs 24,938 crore in 2015-16 -- due to concessions on both passenger and freight services apart from carrying essential commodities below cost of operation -- around 2% less than the loss of Rs 25,346 crore in the previous fiscal.

The total financial impact of social service obligations on Indian Railways stood at Rs 34,106 crore in 2015-16 as per the revised estimate of the budget. This included Rs 34,030 crore of loss on coaching services including suburban and non-suburban passenger traffic, parcel and luggage. The rest Rs 76 crore is attributed to loss on essential commodities carried below cost of operation including fruits and vegetables, bamboo, charcoal, paper and cotton. The net financial impact of Rs 24,938 crore was arrived at after deducting staff welfare and law and order costs of Rs 9,168 crore. 

The decreasing trend observed in 2015-16 is in stark contrast to the 18% jump in losses observed in 2014-15 and the average annual growth of over 15% in these losses in the past six years since 2009-10. “Railways have witnessed a dip in passenger volumes. Also, the cost of operation has come down. The savings of more than Rs 8,000 crore accrued this fiscal would have definitely impacted cost per passenger,” said Samar Jha, former Financial Commissioner of the Railway Board.

Indian Railways passenger volumes have been on a consistent decline since 2012-13. Volumes have dipped 1.4% to 8,101 million in 2015-16 from 8,224 million in the previous fiscal (2014-15). The rail ministry argues the shortfall is due to slippage of volumes on short distance travel. “The number of passengers have come down on short-distance (50-100 Kilometer) traffic as there are alternatives available in road transport. But in the long distance, there has been a positive trend of 4.5% or so,” Railway Board Chairman A K Mital said last month.

According to the rail budget presented last month, the rail ministry managed to cut down railways’ Ordinary Working Expenses (OWE) by 7.3% to Rs 1,10,690 crore in 2015-16 as compared to Rs 1,19,410 crore in 2014-15. The saving of more than Rs 8,000 crore is largely on account of the historic slump in diesel costs and the renegotiation of tariffs with state power utilities. The rail ministry has also gained on the revenue front from the average 4% hike in freight rates last year.

Net financial impact of social service obligations on Indian Railways
Year	Impact	% Change
2009-10	13,675	41
2010-11	13,365	-2
2011-12	16,620	24
2012-13	18,696	12
2013-14	21,391	14
2014-15	25,346	18
2015-16	24,938	-2
Figures in Rs crore
Source: Rail Ministry