Indian Railways suffering from Financial Crisis, Why it is making huge losses?
Current affair
Problem :
1. Indian Railways are incurring significant losses and undecidable operating ratios.
What is required?
2. Holistic assessment is required to improve the financial health and operational efficiency.
Status of Indian railways at present
1. Operating ratio-
It is the sum spend by the transporter to earn revenue.
It is operating cost by railway.
Operating ratio defines efficiency of Indian Railway
Operating ratio is very high for Indian Railway
Operating cost is going up every year and this the primary concern because due to this efficiency is decreasing.
2. Fare -freight ratio-
It is the ratio of average passenger fare to average freight rates.
Higher fare -freight ratio of countries means passengers fare is higher.
India has very less fare -freight ratio means passenger fare is very less.
This has led to cross-subsidization.
India’s passenger fare is customized.
Increase in Fare -freight ratio will increase in inflation.
If Transport fare is high then the market price of the commodity will increase will lead to inflation and affect the macro-economy.
Should fares be hiked?
1. It is estimated that the domestic passenger traffic will grow by 19.2% in 2018-19.
2.Other expenditures – station redevelopment, platform decongestions, laying new tracks, track renewal, dedicated freight corridors.
3. Operating ratio- the near hundred percentage operating ratio does not leave any money for Indian railways to invest on its own.
4.CAG – the highest ever operating ratio since 2001 record it in the financial year 2017 recently made the CAG call for a fare hike.
Challenges due to the fare hike
1. State-run -Indian railways is a state-run service provider competing with alternative modes of transport.
2. The recent example of dynamic pricing – surge pricing has led to a suboptimal outcome of shifting travelers to airlines.
The primary motive is the welfare of people.
Way Ahead (solution to this crisis)
1. Raise additional finance.
-Smart advertisements space selling.
-Selling surplus and potentially unusable land.
-Developing commercial zones or shopping malls near the station area.
-Developing parking areas in the railway station.
2. Pricing
State-run: ensuring welfare for people.
3.WTP surveyWillingness To Pay Survey.
Make optimal fare pricing view of the passengers as well.
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