Indian Railway, Part I - A Race to Bottom?

Indian Railway, Part I – A Race to Bottom

Indian Railway, Part II – Where we are going?

Indian Railway, Part III –  Accidents
Indian Railway, Part IV - Will the Pheonix rise again?


                                                    Last time I used Indian Railway was on my previous journey from Palakkad [Kerala] to Bangalore [Karnataka]. I took a General Ticket for the fully packed Island Express (9.30PM); train was on time, after eight hours of journey I reached Bangalore on the next morning.

For 479kms ticket rate was around 110 Rs for general, and 226 for sleeper class. For the same route local buses (getting down at every other bus stand), charged me around 200 Rs. Kerala RTC earns a minimum 311 (Super Express), Karnataka RTC earns around 400 Rs (Deluxe Service). Just compare these rates with that of Railways!!!


Introduction

After its formal inauguration on 16th April 1853, with 14 railway carriages carrying about 400 guests left Bori Bunder with 21 gun salutes railways traveled a lot. Under ministry of Railways, we have 1,08,706 km tracks over a route of 63,028 km. IR also runs 11,000 trains every day where 7,000 are passenger trains (#4). Employing more than 13.62mn people, Indian rail network is the fourth largest in the world.

Financial condition

It’s very difficult to calculate the actual financial condition of a government run company, especially the one like Indian railway which required a huge amount of Real Estate. For e.g. in many cases the massive land bank owned by IR was not entirely bought by it at market rates. In many cases state governments which want to see trains running through their state acquired the land.

As a government run company it is supposed to give dividends to the share holder, that is central government. But here much more than dividend are going back to Railways in the form of General budgetary support and other developmental assistance. Moreover Railways can also generate money by selling the bonds with an attractive tax exemption tag added to it.

According to the reports IR had a cash surplus of  900 Crores (USD 198mn) in 2005, 14000 Crores (USD 3.1bn) in 2006, 20000 Crores (USD 4.4bn) in 2007 and 25000 Crores (USD 5.5bn) for 2007–2008 fiscal year (#6). In these peak years IR become a global example of how to turn around a company. Many renowned institutions came to India to study this magic formula.

Unfortunately this olden era didn't last long, currently IR became an example how fast a company can 'Race to Bottom’. Railway’s profit in the year 2009-10 stands at 951 Crores, 93% lower than that of 2007-08 level. While the 2009-10 Railway Budget, presented in July last year, projected profits stands at 2,642.26 crores, the estimate has been revised downwards by 64% to 951.03 crores (#7). If dip in profits was some 10 or 20% we can understand, but 93% is not an easily digestible figure. Only IR can explain how it managed to do that!!!

Well the financial situation continued its downward spiral; ministers who try to bring more and more popular budget only accelerated this bleeding. Without the amount coming from the general budget railways may not even make any profit at all. An institution which once represented the poster boy of India's development saga recently racing with other like minded government enterprises like BSNL and Air India in its race to bottom. .

Comparing with Chinese Rail network

Even though we are boasting about the mammoth size of IR, comparison with China shows the pathetic growth rate. At the time of independence India had 54,000 km of rail route, China had only 21,800 km rails in 1950. China reached 78,000 km in 2007 and 86,000 km in 2009. Now they had a target of 1, 20,000 km for 2020. In the same time, that is until 2004 we added an average of 161 km/year to our existing network; from 2004-05 to 2008-09 we added 220 km/year (from 2004-05 to 2008-09 China clocked an increase of 1000km/year). (#9)

According to the IIFL study, China saw her first experimental HSR (High Speed Rail) in 2003, and they are planning to expand it to 28,000 km by 2014. For IR, HSR is a child yet to born.

Sajeev.

For reading next part: Indian Railway, Part II – Where we are going?

References

1. Indian Railways Growth, Sustenance and the Leap Forward a Case Study - http://www.cs.washington.edu/homes/ankit/course_projects/files/nonCS/Indian_Railways_report.pdf
2. Indian Railway Year Book 2009-10 http://www.indianrailways.gov.in/railwayboard/uploads/directorate/stat_econ/Stat_0910/Year%20Book%202009-10-Sml_size_English.pdf
3. Rediff.com: http://www.rediff.com/business/slide-show/slide-show-1-budget-2011-railway-why-the-railways-under-mamata-are-incurring-loss/20110128.htm
4. Ministry Of Railways - Government of India
5. Rail Budget Speech 2011-2012 - http://www.indianrailways.gov.in/railwayboard/uploads/directorate/finance_budget/RailBudget_11-12/RailBudget_2011-12.pdf
6. http://en.wikipedia.org/
7. Indian Railways profit falls 93% in two years - http://www.business-standard.com/india/news/indian-railways-profit-falls-93-in-two-years/17/56/86704/on
8. Railway Budget and the question of Resources - http://xpsajeevk.blogspot.in/2011/03/railway-budget-and-question-of.html
9. Challenge to Indian Railway - Expansion and HSR is the requirement of time - http://xpsajeevk.blogspot.in/2010/03/challenge-to-indian-railway-expansion.html
10. Do we really need a separate Rail Ministry? - http://xpsajeevk.blogspot.in/2011/07/do-we-really-need-separate-rail.html