Indian Railways passenger services and sundry coaching activities (from advertisement, catering and publicity) continue to be in loss and is being subsidised though freight operations, with coal loading/transportation being the key earning activity for the segment, the Comptroller and Auditor General of India’s (CAG) report for the year-ending March 31, 2022, stated. Even Railway undertakings, such as listed subsidiaries and JVs, have been falling short of their dividend pay-out obligations, it held.
In FY22, there was an impact of Covid on the economy and it reflected in a sharp decline in passenger count to around 352 crore as compared to 843.9 crore in FY19 (a pre-Covid year).
According to the report, Railways need to “critically analyse the cost of passenger operations and take steps to reduce its losses” while it needs to “take steps to diversify freight basket to enhance earnings”.
The “MoR (Ministry of Railways) was unable to meet its operational cost of passenger services and other coaching services,” it said adding that there was cross — subsidisation from freight earnings.
Cross Subsidy
Loss incurred by passenger and other coaching services increased from ₹46,205 crore in 2017-18 (non-Covid year) to ₹68,268.85 crore in 2021-22. In FY21 (Covid year), losses were ₹72,169 core. In FY19 and FY20 — when there was no impact of Covid — losses in the passenger segment was ₹55,020 crore and ₹63,364 crore, respectively.
Except the AC-three-tier and AC Chair-car services, all other passenger segments — which include AC first class, AC two tier, sleeper class, ordinary class, second class and EMU sub-urban services — were in loss for five years (FY18 – FY22). Losses in AC three tier and AC chair car were reported during the two Covid years only (FY21 – ₹7,579 crore and FY22 – ₹1,171.32 crore).
In comparison, freight services were profitable during these five years. For instance, in FY22 the freight segment reported a profit of ₹36,196 core, up 110 per cent year-on-year (y-o-y) to ₹17,252 crore in the year-ago period. In FY20, profit was ₹28,745 crore; while in FY19 it was ₹50,812 crore. In FY18, profit from freight services was ₹45,923 crore.
“Passenger services of all zonal railways were in loss,” the CAG noted adding that in six zonal Railways — both passenger and freight services were loss-making.
High Operating Ratio
Operating ratio for Indian Railways continues to be high and was at 107.39 per cent in FY22. This meant, to earn ₹100, Railways spent over ₹107. In FY21, it was at 97.45 per cent, in FY20 it stood at 98.36 per cent, in FY19 it was 97.29 and in FY18 it was 98.44 per cent.
Across 17 zonal railways (including Kolkata’s Metro Railway), at least 10 have an operating ratio of over 100 for five continuous year (FY18 – 22); with Kolkata Metro having the highest, and East Coast Railway having the lowest.
Operating ratio of Kolkata Metro decreased from 278.29 per cent in FY18 to 247.94 per cent in FY19; and further down to 215.97 per cent in FY20. It however, shot up to 677.90 per cent in FY21 before coming down again in FY22 to 432.19 per cent.
For East Coast Railway, the OR was 54.58 per cent in FY22, up from 47.34 per cent in FY21. While in the previous years it stood at 51.49 per cent in FY20, 52.39 per cent in FY19 and 51. 98 per cent.
Dividend Policy
The CAG report has also mentioned that as per Department of Investment and Public Assets Management (DIPAM) instructions, every CPSE would pay a minimum annual dividend of 30 per cent of PAT or 5 per cent of net worth, whichever is higher, subject to the maximum dividend permitted.
However, it was observed that out of 10 profit earning Railway companies, only seven complied during 2021-22. It also noted, the Ministry had not issued any instructions to companies under its administrative control for payment of dividend by thier subsidiaries and its joint venture entities.
“Only one subsidiary (Railway Energy Management Company Limited) out of 18 subsidiaries had declared a dividend of ₹9 crore, though other 8 subsidiaries had earned a total profit of ₹120.08 crore during 2021-22,”the report said adding that none of the five JVs had declared dividend despite a profit of ₹90.54 crore.
“Only two SPVs out of seven had declared a dividend of ₹33 crore,” although three other SPVs had earned a profit of ₹208.78 crore.
Railways had 46 commercial undertakings, subsidiaries, JV and SPVs as per CAG report.
It was also pointed out that the current ratio — measure of company’s ability to pay its short-term obligations — and considered to be acceptable between 1.5 and 3, was less than one for 11 commercial undertakings indicating liquidity problems.