Facts:
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Operating Ratio of railways indicates financial distress in Railways.
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Operating Ratio is the ratio of working expenses to revenues. If the ratio is less than 100%, then Revenues are more than working expenses.
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Currently, the Operating Ratio is less than 100% due to the under-provisioning of the Pension Fund for 2020-21.
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However, the actual Operating Ratio works out to 114.19% and 131.49%, respectively, if the required provision is made for pension payments.
Recent changes:
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In 2016, the Railway Budget was merged with the General Budget. Earlier, Railways had a separate Budget.
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The Dedicated Freight Corridor will be operational by 2022. It includes
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The Western Dedicated Freight Corridor (WDFC), from Uttar Pradesh to Mumbai
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The Eastern Dedicated Freight Corridor (EDFC), Ludhiana in Punjab to Dankuni in West Bengal.
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Union cabinet approved a proposal to create a single cadre for railways management. This was aimed to eliminate “departmentalism” in railways.
Why Railways is in financial distress?
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Freight earnings are not improving despite improvement in freight load.
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Freight loading in January 2021 was the highest ever but revenues for 2020-21 are lower than 2018-19.
What are the future challenges that may increase the financial distress of railways?
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Traffic revenue is unable to keep pace with the increase in staff costs and pension payments. With the (Eighth) Pay Commission, to be scheduled in 2025-26 the working expenses of railways will further increase.
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For example, the passenger and freight revenues increased by 84.8 % from 2010-11 to 2019-20. While the staff and pension costs almost doubled, by 157%, in the same period.
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This is despite the fact that there is a reduction of about one lakh staff on the roll during this period.
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Freight traffic is over-dependent on one commodity, coal. Almost 50% of freight earnings are contributed by the transport of coal. With the increasing usage of renewable energy at competitive prices, dependence on coal will reduce. This will affect freight revenues.
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Other major challenge facing the Railways is the burgeoning staff costs including pension. In this scenario, the proposal to recruit an additional 1.5 lakh staff will further increase the financial distress.