A sign of Rlys’ poor health

Source: This post is based on the article “A sign of Rlys’ poor health“ published in Business Standard on 1st September.

What is the news?

Railways’ accounts reveal it spent ₹98 to ₹100 in 2019-20. In 2019-20, the capital expenditure of Indian Railways (IR) increased 60% over 2016-17. But an analysis by Business Standard shows that Indian Railways has come to depend more on borrowings and budgetary support.

A 2015 Committee on Restructuring Railways had flagged that over-reliance on borrowings could worsen the financial situation of Railways.

Key points

• Outside borrowing– In 2016-17, while 11% of its capital expenditure (capex) was funded by internal sources, in 2019-20 the ratio dropped to less than 1%.
• Less revenue realisation–  Freight earnings are down, and passenger services have suffered. A report by the Comptroller and Auditor General (CAG), released in September 2020, showed that freight profits could barely catch up with passenger losses.
• Failing to capitalise on its assets– Sundry earnings (non-fare revenue), which account for revenues from advertising and lease of space and land, have also fallen.
• Increased expenditure on subsidies– In 2004-05, Railways spent ₹5,738 crore towards its net social sector obligations (revenue forgone due to transporting essential commodities, passenger concessions and fare subsidies). Last year it stood at ₹45,542 crore, a nine time increase.
• Operating ratio is on decline–  For the last two years, CAG has been highlighting that Railways is adjusting advance payments to manage its operating ratio.
• Decline in appropriation towards Depreciation Reserve Fund (DRF)– The appropriation under DRF has reduced by over 90% in the past five years. Instead, the Railways has been carrying out track renewal and repairs using the Rashtriya Rail Sanraksha Kosh.
• Not paying dividend– Railways has also not been paying dividend on its borrowings from the government since 2015-16.

Thus, the above findings suggest that the financial health of Railways is less than optimal and it is facing various issues in handling the freight and passenger traffic.

Terms to know:

• Rashtriya Rail Sanraksha Kosh