Odisha train tragedy exposes safety, fiscal issues, dipping revenue, rising debt

The June 2 Odisha railway disaster involving three trains that killed at least 233 people and injured nearly 900 calls for an urgent need to scrutinise the Indian Railways’ often-neglected flaws and drawbacks.

The tragedy is a stark reminder that the railways’ safety record is still worryingly low despite significant investments in safety measures such as the Rashtriya Rail Sanraksha Kosh.

The fund, intended to finance safety-related works, fell short of its financial obligations each year since its inception in 2017, a clear sign of administrative and budgetary failures.

Moreover, the numbers presented by Congress leader Shashi Tharoor underpin another crucial issue. Tharoor recently criticised the lopsided focus on the semi-high-speed train Vande Bharat Express, highlighting the plight of 2.72 crore passengers left waiting in the last fiscal year.

With 2.72 crore passengers unable to travel due to automatic cancellations, a trend increasing yearly, it points to a severe lack of capacity and a questionable focus on projects like the Vande Bharat Express where the emphasis is more on speed rather than safety.

Automatic cancellations

In response to an RTI request from Madhya Pradesh-based activist Chandra Shekhar Gaur, the Railway Board stated that the bookings of 2.72 crore passengers on the waitlist were automatically cancelled and ticket fares refunded.

During the preceding fiscal year, this number was 1.65 crore. In 2021-2022, a total of 1.06 crore PNR numbers representing 1.65 crore scheduled passengers were automatically cancelled.

The Rashtriya Rail Sanraksha Kosh (RRSK), a safety fund, intended to allot a corpus of Rs 1 lakh crore over five years for critical safety-related works with an annual outlay of Rs. 20,000 crores, including Rs 15,000 crores from Gross Budgetary Support and Rs.5,000 crore from railways internal resources.

The railways were to apportion Rs 5,000 crores each of these five years. However, it did not meet this obligation in any year, as per a report of the Standing Committee on Railways.

The Railways Ministry claimed that the adverse resource position did not permit the desired level of funds to be transferred to RRSK. Hence the contribution from internal resources remained on a significantly lower side, casting a shadow over its commitment to safety and raising questions about its resource allocation and planning.

Worrying finances

The fiscal health of Indian Railways is equally concerning. With revenue earnings barely keeping pace with expenditure, the financial strain is all too evident. Between 2013-14 and 2023-24, railways’ revenue expenditure grew at an annualised rate of 7.2 per cent, outstripping the growth of revenue receipts (6.3 per cent).

Operating ratio, a critical financial health indicator, also revealed an alarming trend, with the railways spending Rs 107 to earn Rs 100 from traffic operations in 2021-22. After stripping away accounting adjustments, the operating ratio has consistently been higher than 100 per cent between 2018-19 and 2020-21, suggesting a system in financial distress.

In layperson’s terms, this implies that the railways have been spending more to earn less, a fundamentally unsustainable financial situation.

The railway revenue structure depends predominantly on freight and passenger services, contributing to 94 per cent of revenue receipts in 2023-24. But growth rates in both freight and passenger traffic have been lacklustre.

The decline in railways’ share in freight transport, from 30 per cent in 2011-12 to 28 per cent in 2017-18, is symptomatic of a deeper problem – an inability to innovate and compete with road transport, which offers better end-to-end connectivity and flexibility.

Mounting losses

On the passenger services front, losses have been steadily increasing. This is because the profit from freight services needs to be increased to cover the growing deficit from passenger services. This is due, in part, to the cross-subsidisation of passenger services by freight services, leading to higher freight tariffs and a consequent drop in freight share.

It is also worth noting that all classes of passenger services, except for AC 3 tier and AC chair car, have reported losses consistently between 2017-18 and 2020-21.

Aside from operational inefficiencies, infrastructure projects have witnessed significant delays and cost escalations, reflecting poorly on project execution. Furthermore, the increasing reliance on extra-budgetary resources has escalated railways’ debt servicing obligations, threatening to crowd out expenditure for productive purposes.

Addressing these pressing issues requires a multipronged approach.

First, the railways needs to revamp its safety measures and efficiency, making them non-negotiable priorities. Rationalising fares, focusing on diversification in freight, reducing vacancies and carefully considering any fare increases are essential steps. Rationalising the pension expenditure could help ease the financial strain.

Staff, pension

The Committee on Restructuring Railways (2015) observed that the spending on staff is extremely high and unmanageable. However, as of March 2021, the railways still had 15.14 lakh sanctioned posts, with about 2.94 lakh lying vacant. If these posts were filled, staff costs for railways would be higher than the current level.

It is pertinent to note that the number of pensioners is higher than the number of current employees, a reflection of the deep-seated issues in the pension system.

Despite this financial strain, the railways have continued undertaking costly infrastructure development projects, which often experience delays and cost escalations. Such inefficiency in project execution increases the budgetary requirements and hurts operations. The cumulative sanctioned costs of 131 out of 173 ongoing projects have escalated to 2.3 times the original.

This indicates a significant gap between planning and execution and raises questions about the efficacy of the Indian Railways’ project management. In addition, the budgetary support from the Central government and extra-budgetary resources has been increasing, which has escalated the debt servicing obligation of the railways.

This reliance on extra-budgetary resources for capital expenditure creates a vicious debt cycle.

What’s to be done?

Rising lease charges are another significant financial burden. The funds raised through the Indian Railway Finance Corp (IRFC) are increasing railways’ lease charges payment obligation, crowding the space for productive expenditure.

The Odisha tragedy has underscored the need to address the fundamental issues affecting the Indian Railways – from safety to capacity management, revenue generation to expenditure control, and operational efficiency to fiscal discipline. It is high time the safety and well-being of the passengers get priority over mere expansion and modernisation of the network.