Indian Railways case study by Ravish Kumar | Unknown facts about Indian Railways

Indian Railways case study by Ravish Kumar | Unknown facts about Indian Railways

Indian Railways case study

Indian Railway System. Railways are considered to be India's lifeline  This system built 100 years ago in the British era is still the world's 4th largest railway system.  And it has an important contribution to India's growth story.  From a ₹5 local train to the world's most luxurious Maharaja Express, Railways have left no stone unturned in helping the country travel but how do our railways earn money?  What are the challenges and where do the Railways spend money?  And what difference does this make to us?  We'll learn about all of that in today's blog post. This is our new series, ‘How India Works’, where we discuss those things that everyone thinks about but whose answers aren't that easily available. If you liked this attempt to understand India,  then please don't forget to follow us.  It's free for you but it helps us a lot. 

Chapter 1:  How big are Railways?  This year, Indian Railways was allocated ₹2.4 lakh crore in our budget.  This is the highest railway budget ever.  Today we set new 12-km lines every day.  And by next year, this target will be 16 km per day.  Today, Vande Bharat Express is only made in Chennai's ICF.  But this year, Haryana's Sonipat, Maharashtra's Latur, and even Uttar Pradesh's Raebareli will be manufacturing Vande Bharat trains Some trains in Indian Railways, run on electricity, and some trains on diesel.

To reduce our carbon footprint, Railways will electrify all lines by 2024 In which, electric infrastructure, overhead wires, and electric locomotives are being made.  Electric engines are more efficient than diesel engines.  Studies say that due to electrification, we can save ₹30,000 crores annually.  And if we talk about technology, then why just depend on electricity?  By the end of this year, we will get to see hydrogen-powered trains.  Talking about size, Indian Railways routes cover 68,000 km in total.  More than 17,000 trains run every day.

More than 2 crore passengers travel by train every day in total, Railways employ 12 lakh people.  It is the 7th largest employer in the world.  Indian Railways is big.  Vivek Express which goes from Dibrugarh to Kanyakumari is India's longest train journey.  It passes through 9 states and completes a journey of 4,189 km.  And to complete this long journey, this train takes full 4 days.  To handle so many projects it must take a lot of money.  But where does this money come from?  Chapter 2:  How does the railway earn money?  You must be thinking that the answer is obvious.

People buy tickets and the railway earns money. In 2022, by passenger ticket sales, Railways earned ₹39,000 crores. Sounds like a lot, right? But this is not their biggest source of revenue. The biggest income source of railways is freight operations.  That is, transporting goods from one place to another.  In 2022, Indian Railways through freight transportation earned ₹1,39,000 crores.  That is, ₹1 lakh crore more than ticket sales.  This, we are talking about big goods that reach their destination from one port.  Along with that, many times, people even send couriers or parcels by train.  People traveling to Ladakh by bike, send their bikes by train.

Such parcel services earn trains ₹700 crores.  There are often ads on railway stations and to place these ads there, Railways charge fees.  By advertising revenue, Indian Railways earn around ₹400 crores.  Now if passengers travel, they will eat food.  Often people buy food from railway shops or hotels.  By catering services, railways earn ₹2,000 crores.  Indian Railways in total, owns 4,780 square kilometres of land.  To put things in perspective, this is 30% more land than Goa State.  By selling or leasing some of the land, Railways earn money.  ₹2,000 crores from land sales and by renting some commercial spaces Railways earned ₹1,000 crore.

When people travel by railway, they order lunch or dinner from pantry services, and railways earn ₹2,200 crores.  Many times, private companies take railway assets on rent.  Like locomotives, wagons, coaches, etc.  Railways earned ₹500 crores by this.  Maharaja Express is a special tourist train with tickets worth some lakhs of rupees.

Similarly, trains like Palace on Wheels, Golden Chariot, and Deccan Odyssey operate.  By operating such ultra-luxurious trains, Railways make ₹150 crores.  Similarly, in the peak season, special trains operate.  Which helps in crowd management and provides relief to people.  With all these, Railways earn ₹900 crores.  The most interesting thing is that, even if people don't travel by train, even then railways earn money.  How?  With convenience fees.  When you book a ticket, it charges ₹20-30 convenience fees.  And if you cancel the ticket, you don't get this money back.  Often, travel agents make big bookings and cancel at the last moment.

To prevent this loss, there are cancellation charges through which railways, wait for it, earned ₹1,900 crores.  If you look at these big figures in a pie chart, for 2022, Indian Railways' revenue figures look somewhat like this. Railways' passenger revenue is only 26% of its total revenue. By seeing these numbers, you must have been surely impressed.  You must be thinking that Railways have a lot of money.  They're rich!  But it's important to understand that this is revenue, not profit.  Railways even have to spend.  Chapter 3: Railway's challenges.  To understand Railways, understanding one number is very important, and that is an operating ratio.  That is, to earn ₹1, how much railways have to spend.  Our operating ratio is 98.14.  That is, we spend 98 paise to earn ₹1.

And these are the latest figures.  In 2021, this figure went up to 107.39%.  That is, to earn ₹1, one had to spend ₹1.07.  During the pandemic, people were sitting at home.  But the salaries of employees and doing repair works were important.  So, Railways were spending more.  They were trying to be operational.  Why are the expenses so high?  If you have watched our budget video, you will know that there are two types of expenses.  Revenue expenses and capital expenses.  If understood in simple terms, you ordered a coffee from Starbucks and spent ₹300 in a flash.  After 15 minutes, you went to the toilet, and both your money and coffee got flushed.  Revenue expenses are those that are used for regular functioning.  On the other hand, if you buy a coffee machine, then it will be your capital expense.  Because you are spending more money here, but that coffee machine is yours.  It is your asset.  Which you can use again and again.  And a time will come when you will recover the cost of this machine.  This is a capital expense.  Which is done to acquire an asset.

In this financial year, railways will have to spend ₹1,05,000 crores on salaries and ₹62,000 crores on pensions.  This number is more than our passenger revenue by ₹1,27,000 crores.  In 2015, the Committee on Restructuring Railways observed that this expense is unmanageable.  Where the income of railways is increasing every year by 6.3%.  Railways expenses are increasing by 7.2%.  This means very soon a point will come when the expenses of railways will be more than the income of railways.  And we are only talking about revenue expenses.  Today, the situation is such that adding up all the railway incomes and adding up all the revenue expenses like salaries, railways are only left with ₹2,000-3,000 crores.  It is impossible to build new infrastructure, new rail lines, and Vande Bharat trains with this money.  That is why, leaving internal revenues, more money is provided to railways.  Money for railway expenditure comes from three main sources. 

 

Chapter 2. 

2. Budgetary support from the Central Government, which is allocated in the budget every year.  3. Extra budgetary support, which includes borrowings and contributions of private players.  Without the support of the second and third, it will be impossible for us to operate railways.

Chapter 4. Opportunities.  After reading Chapter 3, you might think that nothing can be done about this country.  There are many problems, there are many people, there is a lot of poverty.  Solving one problem is like giving birth to another big problem.  But giving up is easy.  Anyone can do it.  It is difficult to find solutions and implement them.  For Indian Railways, the biggest opportunity is DFC, which is a dedicated freight corridor.  This is an ambitious and challenging project in which we will make a different railway track for freight trains at present, what happens is, passenger trains and freight trains both run on the same track.  In Chapter 2, you might have seen that the major revenue of railways is from freight transport.  If DFCs are made, then faster goods transport will be possible.  And then at better rates, we can attract businesses to use railways.

And most importantly, transport time will also reduce. The map of DFCs will look something like this.  As the logistics will improve, we can increase the speed of trade, which will help in giving India an economic boost.  Even today, 70% of India’s goods transport is by road.  This increases traffic and due to traffic, even goods get delayed.  This transport needs to be urgently shifted to railways and waterways.  Train tickets are cheap for passengers because the burden of train operations is taken up by freight transport.  So, to make a better service available for them it is the responsibility of the Railways. 

The other thing that Railways can do is to do a route analysis to see where the demand is high.  Last month, news came in, Kasaragod-Trivandrum Vande Bharat’s occupancy was 183%.  This means, every day, every train that runs is fully booked.  Today, it is difficult to find on the internet which train has how much occupancy.  This data should be declared transparently so that better decisions are taken about train schedules.  The train with more occupancy should have more trains introduced on that line.  Secondly, many people travel in general and unreserved categories.  The condition of these bogies is very bad.  They are very crowded.  Solutions should be found for these travelers too.  The next thing is old coaches.  Coaches of many trains have become old.  By replacing them with new coaches, Railways can increase occupancy.

This will make travelers feel that the fees they are paying, that is worth it.  Chapter 5: What can we do?  We have to make Railways more efficient.  That means we have to reduce unnecessary expenses and increase revenues.  If you have traveled anywhere by train, you must have definitely seen such a color scheme.  These spit stains are from pan, gutkha, the more you clean them the faster they come back.  Do you know that to remove these stains, thousands of gallons of water are wasted every year?  The total cost of this expense is ₹1,200 crore every year.  That means, what we earn by running these ultra-luxurious trains, more than 10 times that amount is spent by us on removing these stains.  We have made a video on this spitting disease in India which you can watch here.  Last year, more than 2 lakh passengers traveled without a ticket.  These are the people who were caught.  The number of those who were not caught will be five times more than this.  Indian trains are very affordable Insite of that, we don't know how many people travel without a ticket.

If you or any of your friends travel without a ticket, then remind them that traveling without a ticket is theft.  And who bears the loss of this theft? Not anyone else, it's us.  Because budgetary support comes from our tax money.  The less Railways earn, the more we will have to pay for the loss.  That means, inflation will rise.  The cost of daily needs will also increase.  Because people get a kick in traveling without a ticket.  If you are fond of traveling, then I would highly suggest definitely giving Indian Railways a chance.  Whenever we travel from Mumbai to Gujarat, we use trains instead of flights.  While traveling from Vadodara to Mumbai experienced the Vande Bharat train.  And indeed, Vande Bharat Express is proof of changing India.

During your holidays with your family, you can take this train experience. You can help to increase the revenue of the Railways.  At the railway station, there is always an announcement, that the Railways are your property.  The point of this post is that you should realize that the railway coaches, stations, and tracks are your property.  Like you take care of your own house, you don't sit here and there in your own house.  Pay the electricity bill on time, fearing an electricity cut.  Likewise, even taking care of the Railways is also our responsibility.  Because if we don't take care, then only we have to pay for it.  Those who steal from the railways or damage the property of the railways, they need to understand that they have to pay the price indirectly.