Off-track finances: Indian Railways needs better Financial Control

September 1, 2023

GS Paper III Indian Economy

Context:

The Union Cabinet has approved proposals worth approximately 32,512 crore from the Ministry of Railways to expand the rail network in various parts of India. The Standing Committee on Railways and CAG report have provided insights into the state of finances of the railways sector.

The funds will be allocated to states like Uttar Pradesh, Bihar, Maharashtra, Gujarat, and Odisha.
Recent reports shed light on the operational deficiencies of the Indian Railways.

Report from Standing Committee on Railways:

Financial assistance for Pension Expenses: For railways to seek partial financial assistance from the Ministry of Finance to address pension requirements.
Increasing Pension obligations: To keep growing, presenting challenges for the railways.
- Estimated pension liabilities have risen from approximately 17,000 crore in 2011-12 to an expected payout of about 60,000 crore in 2023-24.

Challenges faced by Railway Sector in India:

Security Issues: The presence of technical malfunctions and system breakdowns.
- Example-Balasore train incident.
- As per CAG’s analysis of railway accidents that took place between 2017 and 2021, the train derailments persist as the primary cause of accidents, responsible for over 69% of the total incidents.
Departmentalization of the Railway Board: It is structured into distinct divisions making it an intricate, excessively departmentalized entity causing inefficiencies in the decision-making process.
Burden of Social obligations: It is tasked with fulfilling dual roles of generating revenue and fulfilling social obligations.
Over Congestion: It results in crowded trains and heightened risks. The passenger load and insufficient capacity utilization undermines safety measures.
Lack of Modernisation: Its equipment, procedures, and training have persisted without substantial changes over the years.
Land Acquisition: Delays in land acquisition leads to project delays and increased project costs.
Regulatory Hurdles: The projects for the enhancement and modernization of the railway system encounter delays due to bureaucratic obstacles, corruption, and environmental considerations.
High Freight Cost: India’s freight cost is 13 to 14 percent of GDP, whereas it is 9 to 10 percent of GDP in other developed countries.
Absence of Public-PrivateCcollaborations: Private investment currently comprises merely around 15% of the overall infrastructure investment.

Way Forward:

Need for enhancement of financial sustainability
Exploring means of Revenue generation
Acknowledging the management responsibility
Diversification of freight basket
Renewal of Over aged assets
Ensuring private participation
Streamlining regulatory hurdles
Minimization of operational losses
Efficient utilization of Rashtriya Rail Sanraksha Kosh funds(RKSK)

About Railway Sector in India:

The 4th largest railway system, behind only the US, Russia and China.
Average daily track laying was 14.4 kms per day (highest-ever commissioning).
Indian Railways is the single largest employer in India and the eighth largest in the world, employing approximately 1.3 mn people.

Government Reforms in Railway Sector:

Vision 2024: It has been envisaged to achieve targets of 2024 MT freight loading by 2024.
100% Electrification: It aims to electrify the entire network by 2023 which will lead to annual energy savings of $1.55 Bn.
Kavach System: It is an automatic train protection system indigenously developed by Indian Railways.
High-speed Rails: 400 new generation Vande Bharat Trains to be manufactured during the next three years.
Multimodal Logistics: 100 PM Gati Shakti Cargo terminals for multimodal logistics to be developed during the next three years.
National Rail Plan: It aims to increase the share of freight traffic from current 27% to 45% by 2030.
Mission Raftaar: It aims to achieve speed enhancement, doubling average speed of freight trains and increasing the average speed of Superfast /mail/Express trains.