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Indian Railways now has a ‘freight problem’ — Budget documents show that the growth of its key revenue source, freight volumes, is slower than expected, in the low single digits rather than the anticipated high single digits.
At ₹1.8 lakh crore, the anticipated freight earnings in the current fiscal is almost on par with the Budget estimates (BE) last year at ₹1,79,500 crore.
To compare, FY24 freight earnings were revised to ₹1.69 lakh crore, 6 per cent lower than BE. It is also only about 4 per cent higher year-on-year.
Freight accounts for 65 per cent of Indian Railways’ revenue. In FY24, loading volumes stood at 1,580 million tonnes.
Competition
“Freight earnings are increasing YoY, but not at the anticipated level. There is stiff competition from roadways; even inland waterway routes are emerging as a strong contender,” a Railway official says.
The mismatch between actual and expected railway freight earnings is visible in previous years too.
In FY23, earnings stood at ₹1,62,262.90 crore, about 2 per cent lower than the estimated ₹1.65 lakh crore. Budget and revised estimates were the same.
In FY22, the BE earnings of ₹1,37,810 crore was revised upwards by 5 per cent to ₹1,45,275 crore. Actual earnings stood at ₹1,41,096 crore.
Coal loading remains the biggest revenue source in the railway freight segment, contributing about 50 per cent or ₹82,905 crore. Other key cargo include cement, pig iron, iron ore, food-grains, fertilisers, petroleum and other lubricants, and containers.
The share of these items is expected to remain unchanged during FY25.
Cross-subsidy
Historically, Indian Railways has used the profit-making freight segment to cross-subsidise passenger fares.
For, say, a ₹100 ticket, the national transporter is said to charge ₹40–50 through the cross-subsidy, sources explain. The introduction of premium trains like Vande Bharat and the dynamic pricing mechanism have led to an increase in the share of passenger revenues to the overall pie, although annual passenger count is yet to reach the pre-Covid level of 720 crore.
In FY24, about 684 crore people travelled by train.
Again, passenger revenues as a percentage of freight revenues has risen to 30-odd per cent in FY24 from 26-odd per cent in FY23. Passenger revenue is 5 per cent higher than BE in FY24, and 15-odd per cent higher YoY.
According to the Budget 2024-25 document, revenue receipts totalled ₹2,58,600 crore, of which ₹73,000 crore was from passenger services; ₹6,500 crore other coaching receipts, ₹9,300 crore sundry revenue; and ₹700 crore miscellaneous earnings.
Operating ratio
The high operating ratio of Indian Railways is yet another area of concern.
Revised estimates for FY24 are higher at 98.65 per cent, as against BE of 98.45 per cent. The revised operating ratio is 550 basis points higher (0.55 per cent) than the FY23 actual of 98.10 per cent.
The high operating ratio indicates that to earn every ₹100, the Railways needs to spend well over ₹98.50.
The FY25 operating ratio is expected to be about 98.22 per cent, primarily on account of lower external borrowings.
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