A sign of Rlys’ poor health

Source: This post is based on the article A sign of Rlys’ poor health published in Business Standard on 1st September.

What is the news?

Railways’ accounts reveal it spent ₹98 to ₹100 in 2019-20. In 2019-20, the capital expenditure of Indian Railways (IR) increased 60% over 2016-17. But an analysis by Business Standard shows that Indian Railways has come to depend more on borrowings and budgetary support.

A 2015 Committee on Restructuring Railways had flagged that over-reliance on borrowings could worsen the financial situation of Railways.

Key points
  • Outside borrowing– In 2016-17, while 11% of its capital expenditure (capex) was funded by internal sources, in 2019-20 the ratio dropped to less than 1%.
  • Less revenue realisation–  Freight earnings are down, and passenger services have suffered. A report by the Comptroller and Auditor General (CAG), released in September 2020, showed that freight profits could barely catch up with passenger losses.
  • Failing to capitalise on its assets– Sundry earnings (non-fare revenue), which account for revenues from advertising and lease of space and land, have also fallen.
  • Increased expenditure on subsidies– In 2004-05, Railways spent ₹5,738 crore towards its net social sector obligations (revenue forgone due to transporting essential commodities, passenger concessions and fare subsidies). Last year it stood at ₹45,542 crore, a nine time increase.
  • Operating ratio is on decline–  For the last two years, CAG has been highlighting that Railways is adjusting advance payments to manage its operating ratio.
  • Decline in appropriation towards Depreciation Reserve Fund (DRF)– The appropriation under DRF has reduced by over 90% in the past five years. Instead, the Railways has been carrying out track renewal and repairs using the Rashtriya Rail Sanraksha Kosh.
  • Not paying dividend– Railways has also not been paying dividend on its borrowings from the government since 2015-16.

Thus, the above findings suggest that the financial health of Railways is less than optimal and it is facing various issues in handling the freight and passenger traffic.

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