17 April 2016 10:42:56 IST

Under-investment, a chronic challenge

Surge pricing, income from non-fare sources and e-commerce tie-ups could boost revenues

A major financial challenge has been chronic underinvestment in railway infrastructure, which has led to traffic congestion, frequent accidents and lack of modernisation of platforms and tracks.

The decline in freight volume and passenger traffic, coupled with the status quo of freight and passenger charges, has resulted in sub-15 per cent revenue growth. According to the latest CAG report, Indian Railways was unable to meet its operational costs on passenger and other coach services, resulting in a loss of ₹23,643 crore in FY12. The increased wage bill, due to the Pay Commission, will drive down the operating ratio to 92 per cent from 90 per cent.

Non-financial challenges

There has been a rising need to meet the increasing passenger and in-freight demands without hiking fares due to political constraints. That Indian Railways needs to compete with trucks in the freight segment, and with airlines in the passenger segment (domestic air passenger traffic has grown 20.2 per cent while the number of rail passengers have fallen 2 per cent y-o-y) cannot be ignored.

Yet another challenge lies in the need to decongest important routes and trunk lines, and enhance electrification and gauge conversion.

How to raise revenue

Dynamic ticketing is an innovative means of raising revenue to encourage passengers’ willingness to buy. Preferred seats, such as window seats, lower berths and side lower seats, can be priced at a 20 per cent premium which, according to estimates, has the potential to raise the gross revenues by 12 per cent y-o-y.

Surge pricing has been extensively adopted by major logistics operators and travel aggregators. There is sufficient evidence to indicate that an automated surge pricing on the ticketing portal ensures optimum utilisation of trains during off-seasons, and generates surplus during peak seasons.

Non-fare revenue sources, such as advertising at stations and trains, export of railway equipment, cutting operational costs, modifying parcel leasing policy and monetising land, as suggested by the Government in the recent Railway Budget, are also recommended measures.

Parcel trains should be introduced exclusively for transporting parcels and packages of e-commerce websites and other courier services. These could provide additional revenue sources to the freight category. Partnering with e-commerce majors such as Flipkart, Myntra or Amazon would provide the necessary funds.

Ticket inspectors

Past records show a significant increase in the number of ticketless travellers in local trains. This track record can be improved by having two ticket inspectors per train (contractual employees) to physically check for tickets on board.

Keeping inspectors on a contractual basis and incentivising them based on number of ticketless travellers booked for fines will reduce the impact of the Pay Commission outgo, along with ensuring that passengers have confirmed and valid tickets. These inspectors can also be employed to check platform tickets and hygiene.

Operational challenges

Red tape has long been a major hurdle to the implementation of critical recommendations. As reported in this year’s Railway Budget, an implementation report on the progress status of last year’s budget announcements is a step towards improving the turnaround time.

Focus on cloud-based ERP (enterprise resource planning) will help in effective inter-departmental coordination, and subsequent data analytics will help identify critical aspects of operational constraints, leading to further cost-cutting in the long run.

Private partnerships

Investment in new freight corridors, continuing emphasis on new lines and electrification, and new projects in logistics and cold storage through a PPP cell is strongly recommended to improve the level of service.

On the lines of public-private partnerships, agri-cooperative trains funded by farmers’ cooperative societies (for both dairy and vegetables) with cold storage facilities can be used to improve the transportation of perishables effectively. This would also bring the Indian Railways on par with global standards.

(The third runners-up are doing their PGPM at Great Lakes Institute of Management)