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One of the data points that Railway Minister Suresh Prabhu cited in his Budget on Thursday presents a slightly more rosy picture of the Railways’ financial efficiency than the underlying numbers suggest.
Prabhu noted that the operating ratio for FY 17 will deteriorate to 92 per cent from 90 per cent in FY 16. The number indicates the amount of money spent to earn every hundred rupees.
It is arrived at after accounting for all operating expenses such as employee expenses, administrative charges and other costs of materials. The higher the number, the lower the efficiency. For instance, according to the budgeted estimate, the Railways will spend ₹92 to earn ₹100 in FY 17.
But in fact, if one adjusts for the under-reporting of depreciation, the operating ratio for FY17 may be higher, showing up the Railways’ financial efficiency as being even worse off.
The amount set aside to the depreciation reserve fund in the budget estimate for 2015-16 was ₹7,900 crore; it was revised lower to ₹5,500 crore in the revised estimate for 2015-16. For 2016-17, the budgeted amount set aside in the depreciation reserve fund is much lower, at ₹3,200 crore. If we assume a more realistic amount of ₹7,900 crore as depreciation in FY 17, the operating ratio for the next fiscal may be above 94 per cent.
The National Transport Development Policy Committee had, in its report published in 2012, voiced concern on this account, stating that “the ad hoc approach followed in respect of appropriation to depreciation reserve fund needs to be changed to a rule-based approach that adequately takes care of this requirement (ensuring funds for renewal of assets).”
The operating ratio improved dramatically from nearly 98 per cent in 2001 to 76 per cent in 2008. But the impact of the Sixth Pay Commission pushed up expenses and inhibited any further improvement in the operating ratio to a level considered healthy enough to carry on capacity additions without excessive reliance on external borrowings or budgetary support. The ratio has hovered at or above 90 since then. And the latest number indicates that there are miles to go on the track to better the efficiency of the Railways’ finances.
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