Finance Department Reveals Railways Operating At Loss; Spent Rs 111 To Earn Rs 100

In the period of April to July 2018, the numbers in the revenue sheets of Indian railways failed to appease its finance department. In the last five to six years, the operating ratio which has fixed its high pace between 90 per cent to mid 90 per cent has now risen above the threshold limit of becoming worse.

According to the finance department of Indian railways, the operating ratio of the first four months of this fiscal year has taken its toll on the financial condition of railways and touched the new high of 111.51 per cent, which means railways has spent Rs.111.51 to earn Rs.100.

Reasons Behind This High Ratio

According to NDTV, This ratio explains the failure of Indian Railways over the prediction of the traffic growth, which is the principal source of the revenue.

There are mainly two reasons behind the deterioration of the operating ratio:

• With myriad options for transportation and freight, railways are facing intense competition over attracting passengers. Hence, the increase in the influx is not matching with the expected growth.
• With the arrival of the Seventh Pay Commission, there is a massive cash outflow under pension liability.

Other work expenses have also affected the operating ratio.

Numbers tell a story

For the first four months of the current fiscal year, the total earning of railways is Rs.56,717.84 crore, whereas the normal amount was Rs.61,902.51 crore. Railways have pocketed a total of Rs.17,273.37 crore from passengers which is also less than the predicted earnings from commuters. An official said, “This was a lean period for traffic, and typically operating ratio improves in the last quarter of a financial year.” In the goods and freight transport section, railways have collected Rs.36,480.41 crore against the projected amount of Rs.39,253.41 crore.

As the earning is following a declining path; the expenses, on the other side, is following the upward gradient. Working expenses exceeded the anticipated number. Total working expense for the first four months of the fiscal year is Rs.52,517.71 crore against the targeted amount of Rs.50,487.36 crore. Under the pension liability, total expenditure of railways is Rs.47,000 crore per annum, which shows that railways have spent around Rs.12,000 crore in mere pension in these four months.

High Operating Ratio

According to Business Standard, The operating ratio is the measure of the operational efficiency of the company. It measures the cost to operate the company compared to what amount company brings in. In other words, it is the ratio of operating expenses to operating revenue. The high operating ratio shows that railways have failed in increasing capital funds. Railways do not have money to invest in the development of the railways and to improve its service.

The Logical Indian Take

New railroads, modernisation of the rail coaches, spick and span stations and infrastructure of the stations, these works cannot be carried out as railways’ expenses exceed its earning. Although, the railway’s department has declared its highest ever capital expenditure of Rs.1.48 lakh crore for the current fiscal year. This amount would be used for electrification, capacity enhancement, station advancement and infrastructure improvement.

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