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Monday, March 2, 2015

Railways losing competition in passenger traffic

There are lots of positives in the Railway Budget 2015. The intent is very positive and visionary. Let us hope that it will translate into action. The focus on increasing capacity is really the best thing about that intent. Every budget talks about a small increase in capacity - a bit of doubling, a few new lines, a few gauge conversions, improved signalling and so on. But the intent in this budget seems to be to increase capacity very substantially over the next 4-5 years.

One often hears that Railways has lost goods traffic to road transport in the last several decades. What is not appreciated, however, is that Railways has lost passenger traffic to other modes of transport in a big way in the last couple of decades. Let us look at a few numbers.

The AC-1st and Executive class passengers are about 3.5 million in a year. That is minuscule compares to about 70 million domestic passengers that airlines will fly in 2014-15 financial year in India. Even if we add AC-2T passengers (22.5 million), that still is only 26 millions. And remember, the AC-1st, Executive class and AC-2T classes are subsidized on Indian Railways, while airlines pay heavy taxes, particularly on the fuel.

Why do airlines carry three times as many passengers as in AC-2T class when the AC-2T fares are often a fraction of air fares. (In other words, Indigo Airlines carry more traffic than Indian Railways carry in AC-2T class.) Is it that people are rich and they value the saving of time so much. It would have been great, if that was the reason. For long distance traffic (more than 1000 KM), that perhaps does count for a significant reason, but the medium (500-1000 KM) and the short distance (upto 500 KM) passengers would have loved to save money, if there was a convenient overnight train, or a fast evening train. But alas, all convenient and fast trains are always full. Railways is losing out primarily because they simply don't have capacity.

In fact, if we look at AC-3T traffic, that is less than 70 million passengers in a year, and the fares are cheap compared to the air fares. And again, the numbers are comparable to air passengers. It is obvious to me that if the government were to have a more friendly policy towards airlines (like less taxes on ATF), the air traffic has the potential to exceed the total AC passengers on Indian Railways.

But creating additional capacity will not be easy unless they find new sources of revenue (or take a tough political call on removing subsidies). To know the level of subsidies, let us look at the suburban passengers. Railways will carry about 4.5 billion passengers in 2014-15, while various Metros in the country (mostly Delhi Metro) will carry about 1 billion passengers in the same year. The total passenger receipts of Indian Railways from these 4.5 billion passengers is about the same as the total passenger receipts of various Metros in the country (who also have fares influenced by politics, but are doing better than Railways, particularly by not allowing any passes).

Just as an aside, note that the suburban passenger growth on Indian Railways is flat, while Metro traffic will keep increasing substantially every year as the new Metro segments become operational in different cities. In 15-20 years, Metro trains will carry more suburban passengers than Indian Railways, unless IR invests heavily in this segment. But alas, there is no money to invest. And there is no money, because there is no return.

The only non-suburban segment in which Indian Railways has large market share is non-AC classes. There too, I am sure that buses and other road based transport options would compete well, at least for distances less than 300KM, only if there was a level playing field. That is, actual cost was charged by the transporter in each case. Even in this segment, if Railways were to not create additional capacity, they will start losing market share.

If Railways has to remain relevant in the country, it has to invest heavily in creating greater capacity, and I am so happy that the budget puts in such a sharp focus on this issue.


Hari Kumar Voruganti said...

When there are no returns, the blame is completely on subsidies! Is that fair? I never hear about plans to make railways more efficient, cost cutting, reducing number of employees etc. Why should a passenger pay for all the inefficiencies of railways!?

Dheeraj Sanghi said...

@Hari, first of all, have you benchmarked Indian Railways with any other Railway system of the world? How can you say that Railways are much more inefficient than any typical business would be. Second, the subsidies are HUGE and not commensurate with the so-called inefficiency of the Railways. Third, who in your opinion should pay for those inefficiencies - passengers or taxpayers?

Of course, if you believe that till the issue of making IR efficient is sorted out, no investment should be made in IR, that is a point of view I would disagree with.

Avnish Kumar Chawla said...

Hi Dheeraj. Yours is an interesting blog and I liked the above post. Could you please share the source of break-up of passengers carried by IR in different class (like AC-1, AC-2, AC-3, Sleeper, etc.) of travel, as mentioned in your post.
Though the figures are outdated but still I urgently need the source of this break-up. Please share the source. Thanks.

Dheeraj Sanghi said...

I have read it in different documents, but unable to pin point any right now. I just searched on google, and here is a news item that point out that AC-3T is the only service making profit.