Title - Rate hike in railways will merely help achieve budget targets

The rate hikes across passenger and freight segments will not give any major boost to the Railway finances. With passenger losses expected to be around Rs 26,000 crore a year, the introduction of fuel adjustment component in passenger fares will merely add Rs 450 crore.

The freight seasonal hike is not expected to add anything beyond budgeted revenue as the targets are set in accordance to the expected hike. “This seasonal hike is already included in the budget. Our budget targets were set accordingly,” said a senior railway official. The spike in energy and staff costs would be the major reason the Indian Railways would not be able to gain anything extra.

The budget target for 2013-14 has been set at 1047 MT which is 40 MT more than 2012-2013, a growth of 4.7%. The freight earnings are expected to be Rs 93,554 crore, a growth of 9%. The passenger earnings have been set at Rs 42,210 crore.

The energy costs make up for about 25-30% of the Indian Railway budget. The total energy bill of Indian Railways in 2013-2014 is expected to be Rs 24,000 crore. Fuel Adjustment Component applicable from October 10 expected to add Rs 700 crore will merely take care of the fuel price hike. The 5.7% FAC applicable since April 2013 will bring about Rs 2,400 crore to the Railways. This should be viewed in the light of increased the energy prices which have gone up by over 20% for electricity and Railways since 2012.

Rising staff costs is another major factor that will feed into the profits of the Indian Railways. Dearness allowance has been hiked by 10% from July 1. This is along with the increased productivity linked bonus for over 12 lakh Railway employees, which will cost Rs 1043 crore.

Although the Railways is expected to gain Rs 450 crore, it is yet to be known how much losses has the Railways absorbed under the FAC. In 2012-13 Indian Railways absorbed Rs 850 crore only on account of rising fuel costs.
While the hike in rates may help the Railways to achieve its budget target, the persistent rate hike has hampered the volume growth. In 2012-2013 Railways fell short of its target by 15 million tons and despite a spike of 22% in their revenue the volume grew by a modest 40 million, a growth of 4% compared to last year.

In 2011-2012 when the Railways maintained a growth rate of 5.16% on its volume. This has fallen to 4.13% in 2012-2013 and hovers at around 4.5% for Arpil-June quarter. The steep increase in freight rates has also capped the volume growth which would be limited in its growth because of high rates and limited capacity of Railways.

“If each year we set the budgetary targets which are higher than the last year without capacity augmentation, how will we achieve then without increased rates, also remember there is no income but only losses at the passenger segment”, said a senior Railway official.

Keypoints

Traffic Target of 1047 MT which is 40 MT more than 2012-2013

The freight earnings target has been set at Rs 93,554 crore, a growth of 9%.

Additional factors that can be deterrant-

Hiked Dearness Allowance by 10 %

Increased fuel costs-taken care by FAC-5.7 % and 1.7 %