TRANSPORTATION ECONOMICS AND FINANCE (CEL 844)

Contribution of Railways to Indian Economy

PREPARED BY
Manali Telang Pradeep Kumar Mohsin Manzoor Janwari Arstu gautam

CONTENTS
Background Indian Railways: An Overview Advantages of Railways Loopholes of Railways Economic Analysis of Indian Railway Strengthening measures Major recommendations Needed References

Map of Railway 1909 and 2013

BACKGROUND
Indian Railways is one of the world's largest railway networks. Comprising 1,08,706 km (71,000 mi) of track over a route of 65,000 km (40,000 mi) and 7,500 stations comprising Broad Gauge (44,776 RKm), Metre Gauge (14,987 RKm) and Narrow Gauge (3,265 RKm). Approximately, 24 per cent of the network is electrified..

In 2011, IR carried over 8,900 million passengers annually or more than 24 million passengers daily (roughly half of which were suburban passengers) and 2.8 million tons of freight daily.
In 20112012 Indian Railways had revenues of Rs 1,119849 million (US$18 billion) which consists of 696759.7 million (US $11 billion) from freight and 286455.2 million (US $4.6 billion) from passengers tickets.

Indian Railway Overview

Broad Gauge Meter Gauge Narrow Gauge (762/610 mm) Track Kilometers (1676 mm) (1000 mm) 86,526 18,529 3,651 Electrified Route Kilometers 16,001 Route Length Railway Station Railway Engines Coaches Wagons Total 108,706

65,000

65000 km 7,031

Locomotives
Coaching Vehicles Freight Wagons Stations Yards Good sheds Reapair Shop Million Work Force

7566
37840 222147 6853 300 2300 700 1.54

7,817
36,510 2,28,170

Ref : Indian Railways- An Introduction, B.V.L.NARAYANA, Senior professor / Transportation Management

Ref:-http://www.indianrailways.gov.in/railwayboard/view_section.jsp

Group-wise and Department-wise railway employees as on 31-3-2011

Ref:-http://www.indianrailways.gov.in/railwayboard/view_section.jsp

Advantages of Railways
It facilitate long distance travel and transport of bulky goods. It is a quick and more regular form of transport It helps in the industrialization process of a country by easy transportation of coal and raw-materials at a cheaper rate. It encourages mobility of labour ad thereby provides a great scope for employment.

It is the safest form of transport.

The carrying capacity of the railways is extremely large. Capacity is elastic which can easily be increased by adding more wagons. It is the largest public undertaking in the country. Railways perform many public utility services. Their charges are based on charge what the traffic can bear principles which helps the poor.

Loopholes of Indian Railways

High Capital Cost 156-year old Indian Railways was dismissed as a hopeless, loss-making organization, with too little revenue, too many problems and too many employees. IR was spending 91% of its income just on salaries and maintaining an aging organization. In 2001 the Rakesh Mohan Committee headed by former Reserve Bank of India deputy governor Rakesh Mohan, termed India Railways a "white elephant', with a debt of Rs 61,000 crore ($12.3 billion) and even predicted fatal bankruptcy by 2015. The railway requires a large investment of capital. The cost of construction, maintenance and overhead expenses are very high as compared to other modes of transport.

Losses
Losses to the Railways on account of passenger traffic are likely to mount to Rs. 24,600 crore in 2012-13 from Rs. 22,500 crore in 2011-12, Mr Bansal said in his maiden Budget speech in Parliament. Old Track and Poor State of Rolling Stock Tracks are old and outdated. These old tracks cause serioous railway accidents. This has also resulted in speed restrictions. Virtually, every new timetable, running time of all trains has been increased while railways in other advanced countries are reducing it drastically.

Competition with Road Transport The competition with road transport is growing in intensity, both in passenger and in goods transport. The lack of coordination between railways and road transport has lowered the earning capacity of the railways.

Outmoded Technology
The rolling stock technology is absolutely outmoded. The system is beset with excessive man-power and manpower development has not kept pace with technology up gradation. This has made railways incapable of coping with increasing transport demand and of raising and improving the traffic volume and flows at lower unit cost of operation.

Problem of Replacement
The problem of replacement of old and obsolete railways engines, wagons and other equipment has created a serious problem in India.

Problem of Laying Double Lines

Most of the railway lines are single lines which create great inconvenience to the railway organization and passengers.

Economic Analysis of Railway

Revenue Analysis

REVENUE ACCOUNT OF RAILWAYS

900000 800000 700000 600000 500000 400000 300000 200000 134310.888

Million Rs.

100000
0

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06 Gain or Loss

2006-07

2007-08

2008-09

Revenue
Source: Ministry of Railways(Railway Board)

Expenditure

GDP SHARE OF RAILWAYS

Sector 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05

Transport share in GDP Railways Road Transport

Water Transport
Air Transport Services incidental

5.7 1.1 3.8

0.2
0.2 0.4

5.8 1.1 3.9

0.2
0.2 0.4

5.8 1.1 3.9

0.2
0.2 0.5

6.1 1.1 4.1

0.2
0.2 0.5

6.2 1.1 4.3

0.2
0.2 0.5

6.4 1.1 4.5

0.2
0.2 0.4

Ref : The Working Group Report on Road Transport for The Eleventh Five Year Plan Government of India, Planning Commission, New Delhi

As percentage of GDP (at factor cost and constant prices)

7 6

5
4 3 2 1 0

Services incidental Air Transport Water Transport Road Transport Railways

Operating ratio of Railways

Year
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 (RE) 2010-11 (BE)

Operating Ratio
92.1 91.0 83.2 78.7 75.9 90.5 94.7 92.3

Operating ratio actually means how much railways is spending to earn a rupee. Hence, the lower the ratio, the better it is. Compared to years say 2006-07, 2007-08 and 2008-09, the operating ratio now is low even though same peroid witnessed Economic Recession and 6th pay commission. Reason:- Then CM, Lalu Prasad Yadav, in 2004-2008, sold many old Assets of Railways and increases No. of wagons which increases freight turnover of wagon goods from 81 tonnes to 90 tonnes. Shored up earnings by carrying more passengers and freight. This gave an additional earning of Rs 7,200 crore.
Ref : PROJECT REPORT ON ANALYSIS OF BUDGETING PROCESS IN INDIAN RAILWAYS By Ranjeet Ramaswamy Iyer

Key Statistics of Railways performance

Ref : Position Paper On The Railways Sector In India, October 2009 Department of Economic Affairs, Ministry of Finance, GOI

GDP Growth VS Railway GDP

The table clearly shows that the performance of IR vis-a-vis the economys GDP growth in recent years is reasonably good. The better performance of railways can be attributed to certain operational initiatives like optimum use of assets, flexible tariffs, optimisation of both loading and carrying capacity of rolling stock and the expansion of capacity in passenger services.

The figure reveals No. of employees remain nearly same from year 1950 to 2008

Freight Revenue

Indian Railways earns about 70% of its revenues from the freight traffic (Rs. 686.2 billion from freight and Rs. 304.6 billion from passengers in 201112). Most of its profits come from movement of freight. It makes a loss on passenger traffic. It deliberately keeps its passenger fares low and cross-subsidises the loss-making passenger traffic with the profitmaking freight..

FREIGHT REVENUE SHARE

Coal Raw material to steel plants Pig iron and steel Iron ore for export Cement Food grains Fertilizers Mineral Oils Other goods

Ref : Indian Railways Year Book 2009-10

Freight Operation in 2011-12

Growth of total freight Traffic

700

Total freight transported (btkm - billion tonne km)

600

500

400

Road
300

Rail

200

100

0 1950-51 1960-61 1970-71 1980-81 1990-91 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05

Ref : http://www.irfca.org/docs/stats/stats-modal-split.html

Passenger Revenue

Ref:- http://www.indianrailways.gov Indian Railways Statistical Publications 2011-12

Total Earning of Railway

Ref:- http://www.indianrailways.gov Indian Railways Statistical Publications 2011-12

Growth of Total Passenger Traffic

4000

Total distance travelled (bpkm billion passenger km)

3500

3000

2500

2000

Road Rail

1500

1000

500

1950-51

1960-61

1970-71

1980-81

1990-91 1999-2000 2000-01

2001-02

2002-03

2003-04

2004-05

Ref : http://www.irfca.org/docs/stats/stats-modal-split.html

Passenger Traffic modal share

100

90

80

70

60

Percent share

50

Road Rail

40

30

20

10

0 1950-51 1960-61 1970-71 1980-81 1990-91 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05

Ref : http://www.irfca.org/docs/stats/stats-modal-split.html

COMMODITY WISE LOADING OF REVENUE EARNING (2009-10, 2010-11)

Comparing Passenger Journey, passenger Earning, & passenger earnings

Expenditures Analysis

Sector wise Expenditure of Railways upto XI Plan 2007-12

Expenditures as per Plan Head

Analysis of expenditure Plan from 1950 to 2011 (%age)

Comparing NTPC VS Indian railway

Comparing NTPC VS Indian railway Description

Employees Revenue (in crore) 2011-12 Profit (in crore) 201213

NTPC
25,484

Indian railway
14,00,000

72,540

1,25,600

16,611

10,400

RAILWAYS REVENUE & EXPENSE HEADS

Indian Railway earn its REVENUE from the following heads :
1. Freight Earnings : Bulk items, Other items & Miscellaneous 2. Passenger Earnings : Long distance, Suburban and Ordinary short distance

3. Others Coaching Earnings : Parcel, Catering & Advertising

Indian Railway EXPENDITURE are under following heads : 1. Freight and Passenger Operations 2. Maintenance, Upgradation and Expansion of facilities 3. Other Works incl. inventories 4. Facility Operations 5. Employee Wages & staff amenities 6. Compensation 7. Social welfare, Healthcare, sports

PASSENGER REVENUE SHARE

Long Distance service Classes of Travel AC 1st Class AC 2nd Class AC 3-tier 1st Class A Chair Car Sleeper Class - Reserved and Unreserved Second Class Suburban Service : All Classes Ordinary short distance Service

Ref : Indian Railways Year Book 2009-10

Railways infrastructure and assets

Ref : http://infrastructure.gov.in/pdf/brochure_railway.pdf, based on Railway Year Book 2004-05

REVENUE FROM ADVERTISEMENTS, VENDORS & OTHER SERVICES

Others : Parcel, Catering & Advertising

A passenger train has 16 tons of capacity for carrying parcel Annual parcel carrying capacity of around 35mt, current utilization is around 5mt

(14%).
Formulated a new catering policy in order to improve the standards of food being served in the trains and in the stationary units to generate more revenue. the catering contracts are given through an annual open tendering system, under the ownership of IRCTC. The various strategies on advertising currently being leveraged are: (i) wholesale leasing (ii) leasing for a division as a whole (iii) open competitive bidding and (iv) trains and wagons.

Ref : Turnaround of Indian Railways: A Critical Appraisal of Strategies and Processes by G Raghuram, IIMA

REVENUE FROM ADVERTISEMENTS, VENDORS & OTHER SERVICES

Catering
Year Total no of pairs of trains catered Pairs of trains as departmental Static catering units Sales turnover of departmental units License fee IRCTC income 2001-02 228 43 3152 stations Rs. 196 Cr. Rs. 23 Cr. -2002-03 231 39 3152 stations Rs. 202 Cr. Rs. 26 Cr. Rs.37 Cr.
5000 4500

2003-04 234 38 3152 stations Rs.172 Cr. Rs. 29 Cr. Rs. 42 Cr.

2004-05 250 12 9270 units Rs. 191 Cr. Rs. 59 Cr. Rs. 76 Cr.

Parcel
Year Revenue 2001-02 437 2002-03 453 2003-04 444 2004-05 524

4000 3500

Advertising
Year WR CR NR IR Total Rs. Crore 2003-04 2004-05 14.5 5.6 9.7 50.2 2005-06 25.7 13.0 10.4 78.1

3000 2500 2000 1500 1000 500 0

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Source : 1. Ministry of Railways(Railway Board) 2. Indian Railways Year Book 2009-10

Other miscellaneous

Other coaching

Ref : Turnaround of Indian Railways: A Critical Appraisal of Strategies and Processes by G Raghuram, IIMA

RAILWAYS WORKING EXPENSES

90000 80000 70000 60000

Rs. Crore

50000 40000 30000 20000 10000 0

2001-02 2002-03 2003-04 2004 -05 2005 -06 2006 -07 2007 -08 2008 -09 2009 -09

Working Expense

Railway Expense under the heads

1. Freight and Passenger Operations 2. Maintenance, Upgradation and Expansion of facilities 3. Other Works incl. inventories 4. Facility Operations 5. Employee Wages & staff amenities 6. Compensation 7. Social welfare, Healthcare, sports
Ref: 1. Ministry of Railways(Railway Board) 2. Indian Railways Year Book 2009-10

EXPENDITURE ON PURCHASE AND CLAIMS

Expenditure on Purchase

Claims for Freight Service

Casualties & Compensation

Ref: 1. Ministry of Railways(Railway Board) 2. Indian Railways Year Book 2009-10

EXPENDITURE ON STAFF

Ref: 1. Ministry of Railways(Railway Board) 2. Indian Railways Year Book 2009-10

RAILWAY BUDGET OVER THE YEARS

SRSF : Special Railway Safety Fund Ref : Position Paper On The Railways Sector In India, October 2009, Department of Economic Affairs, Ministry of Finance, GOI

RAILWAYS FINANCE AND FUNDS

The proposals of Railways in respect of amount required to meet the expenditure of the year is submitted in the form of Demands to the Parliament and on receipt of vote of Parliament known as the Grant.
Demand 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Particulars of the demand Railway Board Miscellaneous expenditure General Superintendence and Services Repairs and Maintenance of Way and Works Repairs and Maintenance of Motive Power (Locomotives) Repairs and Maintenance of Carriage and Wagons Repairs and Maintenance of Plant and Equipment Operating Expenses- Rolling Stock and Equipment Operating Expenses- Traffic Operating Expenses- Fuel Staff Welfare and Amenities Miscellaneous Working Expenses Provident Fund, Pension and other Retirement Benefits Appropriation to Funds Dividend to General Revenues, Repayment of loan taken from General Revenues and Amortization of over-capitalization Assets-Acquisition, Construction and replacement

Ref : 1. Railway Finance And Expenditure by Shri. R.L. Wasnik 2. Project Report On Analysis Of Budgeting Process In Indian Railways By Ranjeet Ramaswamy Iyer

Conclusion
Railway sector is user friendly sector for large bunch of poor people. If proper infrastructure is provided and present state of infrastructure improved it can turn into better mode of transport with healthy profit.

References
1. http://pib.nic.in/feature/fe0199/f1101991.html 2. Engines of Growth: The Productivity Advance of Indian Railways, 1874-1912 Dan Bogart Latika Chaudhary ; Draft: September 2011. 3. G. Alivelu, Salient Aspects of the Growth Story of Indian Railways 1981-82 through 2007-08, CENTRE FOR ECONOMIC AND SOCIAL STUDIES, Begumpet, Hyderabad 4. Alivelu. G. (2008). Analysis of Productivity Trends on Indian Railways, Journal of Transport Research Forum, 47(1): 107-120 5. Bhandari (2005) Indian Railways Glorious 150 years, Publications Division, Ministry of Information and Broadcasting, Government of India, New Delhi 6. http://www.indianrailways.gov.in/railwayboard/view_section.jsp?id=0,1,304,366,554 7. http://indiabudget.nic.in/es2001-02/chapt2002/chap98.pdf 8. http://profit.ndtv.com/news/budget/article-rail-budget-2013-railways-faces-rs-24600-crore-losses-from-passenger-traffic-in-2012-13-318541