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RAMAKRISHNAN
T S
Doctorate
in Public Systems from IIM Ahmedabad and currently teaches at TAPMI, Manipal
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With the passage of the Goods
and Services Tax (GST) Bill in Parliament, there is a sense of well-being in the
country, as it is expected that this tax would turn India into a single market,
cut the flab in the logistics industry and remove distortions created by
inter-state taxes, thereby make the manufacturing sector more competitive.
Growth of the manufacturing sector would spur growth of the logistics industry.
The transport sector would be happy with the double benefit of growth in its
business and reduction in transportation costs.
But Indian Railways (IR)
should be worried with the arrival of the GST, unless it wants to remain in a
sthitpragya state.
Why so?
Because IR’s sustenance,
freight traffic, — which accounts for about 70% of its revenue from transport
operations — has been plateauing of late, registering about 1.095 billion
tonnes in 2014-15 and 1.107 billion tonnes in 2015-16.
Indian Railways had
commissioned the National Council of Applied Economic Research (NCAER) to
assess the prospects of its freight traffic in 2016-17 as well as to suggest
possible strategies.
NCAER recommended reduction of
freight rates, removal of 10% port congestion charges, review of 15% season
surcharge, some changes in operations such as reviewing the two point loading
restriction, restoring the long- term committed business segment of short-
distance freight traffic with concessions and abolishing dual freight rates for
transporting iron ore (30% more for export than for domestic use). All these
recommendations were made essentially on the principle of price elasticity —
that with decreased freight charges, demand would increase substantially and
hence, overall revenue would also increase. IR removed 10% port congestion
charges and 15% season charges effective from May 1, 2016. It abolished dual
freight rate for transporting iron ore effective from May 10. These measures
did benefit IR — a three% overall increase in freight loading — but there was
also a seven% overall drop in revenue in June 2016 compared to June last year.
This apart, in April and May this year, there was a decrease in freight loading
by two% from the figure during the same months in 2015. In a nutshell, IR did
not generate as much revenue in the first quarter of 2016 as it did in the same
quarter last year. Neither the existing freight charges nor the reduced freight
charges helped IR increase its revenue from freight traffic — decreased freight
charges did help it transport some more freight but with a loss of revenue.
Why? Price elasticity works only when the service delivery is the same across
competitors. IR’s service delivery has been worse than other transport modes.
It became convenient for IR to go for the knee- jerk measure of reducing
freight rates based on the NCAER report without even assessing by itself what
was essentially wrong with its freight service model. NCAER, on its part, did
not analyse the issue in a holistic manner to arrive at path- breaking
solutions to increase rail freight traffic.
What was the core issue that
stopped IR from increasing its freight transport output? It is this: IR has
been unable to provide faster and timely transportation of non- bulk freight
transport and hence has been unable to make a foray into non-bulk freight
transportation. Whether it is the transportation of raw material, partly
processed goods or finished goods, those who look for faster and committed
delivery don’t prefer transporters who transport goods at their own will and
are non- committal about delivery.
To understand this fully, we
need to know the freight transport pattern in general. There are two categories
of freight — bulk and non- bulk materials. Materials defined by weight and
volume such as coal, iron ore, food grains, petroleum and cement are bulk
materials.
There is a qualitative
difference in the transportation and handling of bulk and non- bulk materials.
Some of the bulk items such as iron ore and coal are of low value, whereas most
of the non- bulk items are invariably of high value. Materials in transit also
form the inventory.
Hence, the transportation of
non-bulk materials happens in smaller consignments, rather than accumulating
and transporting them in one go. End-to end transport also has to be faster,
safer (for the material) and the material has to be delivered in the committed
time, even if the transportation cost is higher. On the other hand, the sole
criterion for transportation of low- value bulk material is that it should be
cheap. Given this condition, IR had a clear edge over road transport in
transporting low- value bulk materials of coal and iron ore. IR also has an
edge in transportation of high- value bulk materials such as cement,
fertilisers, food grains, petrol, oil and lubricants, especially if these are
transported over long distances. As a result, bulk items contribute about 89%
of freight loading and 85% of freight earnings of IR. However, IR pays a price
for transporting bulk items, as 40% of the wagon movement is on empty rakes.
This is a huge flab IR carries for capturing and retaining low- value bulk
material transportation.
In bulk freight traffic, coal
is the single major source of revenue for IR, contributing about 30%, against
29% of the entire passenger transport.
Hence this would hit IR’s
financials. The NCAER study estimated that freight transport for IR would grow
at 2.1% in 2016- 17 and half the growth would come from coal alone. However, IR
may not be able to achieve any addition to coal transportation volume as
conditions are not conducive.
As of 2016 India has surplus
power and its power sector has been steering towards solar power. Against this
backdrop, IR cannot depend any more on coal to augment its freight traffic and
hence, its revenues. Moreover, pipeline and coastal shipping have also forayed
into transportation of bulk items, giving IR tough competition. For medium
distances, cement transportation has already moved towards trucks. In such a
situation, it is difficult for IR to retain existing bulk freight transport
volume, let alone augment it.
Rationalise
passenger transport to gain freight traffic
The
capacity released thus would help the Indian Railways move freight traffic at
an average speed of 50 km per hour. This would enable it to make inroads into
transportation of non-bulk items
To overcome the plateauing of
freight traffic, the Indian Railways' (IR) Hobson's Choice is to increase
transportation of non-bulk freight. The larger issue for IR is providing faster
and more reliable end-to-end connectivity than road transport, rather than a
comparison of its freight transport fares with that of road transport. In
India, a truck travels about 280 km in a day; freight trains cover about 576 km
(at an average speed of 24 km per hour) during the same period.
However, for non-bulk freight,
less frequency, lack of facility to transport smaller consignments, cost and
uncertainty associated with last-mile connectivity in rail freight transport
mean that truck transport has remained competitive.
The issue becomes much larger
for IR with GST. With the removal of state border checkpoints, a truck is
expected to travel about 440 km in a day. Hence, to capture non-bulk traffic,
IR needs to increase the average speed of its freight trains from 24 kmph to at
least 50 kmph. There is no restriction on the part of IR's trains (either
passenger or freight) to reach a maximum speed of about 90 kmph on any section
of the network -almost all stretches support that speed. The issue is about
priority in accessing track infrastructure and hence, the associated reduced
average speed. Although about 70% of revenues from transport for IR comes from
freight transport, it gets the least priority in the waterfall model of
allowing access to tracks. Also, it uses only about 33% of the IR's network
capacity. Luxury trains such as Shatabdi, Rajdhani, Duronto travelling at an
average speed of 80 to 100 kmph, Express/Mail trains with an average speed of
50 to 60 kmph and ordinary (passenger) trains running at an average speed of 36
kmph get first, second and third preference, respectively. Freight trains come
next in the order of preference.
Although a detailed study
would yield a blueprint for how IR could achieve both higher passenger volume
and freight transport for the given network, the directions in which it should
move are outlined here. To achieve an average speed of 50 kmph, freight trains
should get access to at least 50% of IR's network. Then the question is how the
existing volume of passenger traffic can be maintained, if not increased, with
just 50% access to network capacity against the current 67% access.
The share of passenger traffic
in ordinary trains decreased from 37.5% in 2005-06 to 28.42% in 2014-15,
whereas the share of faster trains increased from 62.5% in 2005-06 to 71.58% in
2014-15. Since 2013-14, passenger traffic in ordinary trains has been
decreasing in absolute numbers also. Even some of the Mail/Express and luxury
trains have been running without much demand for years together.
The Comptroller and Auditor
General (CAG) of India has been highlighting this anomaly consistently in its
earlier reports. For instance, in its report in 2009, the CAG highlighted that
30% of the newly introduced trains in nine zones between 2002-03 and 2007-08
had less than 50% occupancy; yet many of them are still running. The Bibek
Debroy report submitted in 2015 mentioned that there are at least eight luxury
trains, which have been running on losses. Their losses are because of poor
occupancy, as evidenced from the hundreds of tickets available even on the day
of journey of these trains.
Against this backdrop, IR
should go for a major overhaul of the schedule of its passenger trains.
Although there are regular official orders that instruct railway zones to
identify trains with an occupancy rate of 50% and reduce their services or
coaches, there is no concerted effort in that direction on the basis of train
data analysis.
The first measure I would
recommend in this direction is that IR operate passenger trains based only on
demand; populist trains introduced in the last two decades without commensurate
patronage should be trimmed by reducing their frequency, if not altogether
stopping them. Even as several trains have more than 200 waitlisted passengers
every day, running some trains with so many vacant seats is a criminal waste of
the scarce resource of a railway network.
The second measure I would
recommend is that IR estimate the total transport demand (rail, bus, car and
air) in terms of O-D pairs between cities or clusters and then reschedule
trains that provide faster connectivity between the cities or clusters with
limited stop service at originating and terminating cities or clusters.
Although Railway Minister
Suresh Prabhu has not yet yielded to the pressures of additional stops or
unviable trains, more than enough damage has already been done. That damage has
to be reversed.
The third measure I would
recommend is that IR phase out at the earliest ordinary trains that have lost
patronage and which cause congestion on a high-density network. IR locomotives
take about 10 minutes to reach their maximum speed permitted on that section.
The problem with ordinary trains is that with stoppages as frequent as every 15
km, they have been decelerating even before accelerating to reach the maximum
speed. The basic theme of all these measures is that trains (both passenger and
freight) are supposed to continuously run all the time, except for pick-up and
drop at points determined by the O-D data.
If the flab in scheduling of
passenger trains is removed, according to the measures suggested here, IR could
achieve the same passenger traffic - or even more - by utilising just 50% of
its network. The average speed of passenger trains would shoot up by at least
25 kmph, thereby leaving 50% of the network for freight traffic. With the
capacity released by this rationalising measure, freight traffic would be able
to move at an average speed of 50 kmph, thus making major inroads into the
transportation of non-bulk items. Without a rationalisation in passenger
transport, IR may lose high-value bulk and non-bulk freight traffic to road
transport completely. It would then have to live like a parasite on the subsidy
provided by the Budget.
Article Collated by Surya Narayan Nayak
