The Indian Railways, which accounts for about a third of the total freight carried within the country, appears to be defying the economic downturn that has brought the country’s gross domestic product (GDP) growth down to 4.4 per cent in the first quarter of 2013-14.
In the first four months of this financial year, the railways carried 343 million tonnes (mt) of goods across its network, an increase of about five per cent over 327 mt moved in the corresponding period of 2012-13. Freight revenue for these months was estimated at Rs 29,690 crore, eight per cent higher than the revenue in the year-ago period. In contrast, India’s GDP growth dipped from 5.5 per cent in April-June 2012 to 4.4 per cent in the corresponding period this year. GDP growth data for April-July are not yet available.
Experts, however, point out the growth elasticity for railway freight movement in relation to overall GDP changes is estimated at 1.25. In other words, railways should grow by 1.25 per cent for every one per cent growth in GDP. Going by this yardstick, the freight volume movement in the April-July 2013 period is just about half a percentage point less than the expected growth figure, but the revenue figure for the same period is well above the optimum level. (Click for graph & table)
“Considering the overall economic slowdown and ban on iron ore exports, the Indian Railways has done well. The fact that they have pushed more coal and domestic demand for iron ore has helped them sustain the four-five per cent growth cap,” said Abhaya Agarwal, partner, infrastructure and public-private partnership, Ernst and Young (EY).
Experts say sustained growth of around six per cent in coal volume during the April-July period helped the railways perform better even when the overall economy was bleeding. The railways depends on coal for about 40 per cent of its revenue. Although iron ore exports are still under major restrictions, a sustained domestic demand from steel plants and domestic users has helped the railways make good the loss it sustained from lower exports. For example, the volume of iron ore carried for exports dropped 43.60 per cent in 2012-13, but the demand for other domestic use and steel plants increased 11.5 per cent. The trend was similar in the April-July 2013 period with a similar increase in iron ore transportation by more than 20 per cent. A hike in freight rates also helped the railways keep revenues growing.
But the revenue growth in April-July dropped to eight per cent, compared with a rise of 26 per cent a year ago. The decline can be attributed to the erosion in the base effect of last year’s performance. Freight rates were increased 15-35 per cent in March 2012, which was largely responsible for the 26 per cent revenue growth in the first four months of 2012. However, the freight rates increased only 5.7 per cent in April 2013, which in effect reduced the revenue growth in the April-July period to eight per cent.
There were other factors for the drop in the revenue growth as well. Senior officials at the Rail Bhavan attributed the fall to the economic slowdown and a lower rate of overall economic growth. “The eight core sectors are growing at 2.3 per cent, compared to that we are doing quite well,” added an official.
Recently, minister of state for railways, Adhir Ranjan Chowdhary, had said freight rates would be revised in October which could provide a boost to revenues in the second half of the current financial year. But the move may further drive away cargo to the roads sector. Railway and coastal shipping costs in India are around 70 per cent higher than those in the US and by any international standards.
“Major commodities like steel, food grains, finished goods, cars, etc have moved to roads because of lower efficiency of the Indian Railways. The expressways and highways are badly clogged today,” says Agarwal of EY. Over 80 per cent of the current railway network has been inherited from the British. Since 1947, the railways has merely added 10, 464 km, compared to China’s 20,000 km in past five years.
When persistently questioned about why the Indian Railways’ freight operations have not grown faster, government officials cited the lack of network augmentation and increasing number of passenger trains as the key reasons. “If each year you have these new trains, without proper budgetary allocation and the earnings of freight are used to make up for the losses in passenger traffic, how can you see growth? We currently do not have dedicated corridors for freight,” said a senior official at Rail Bhavan.
Officials also indicated that to maintain growth without adequate capacity augmentation is a challenge. “We dynamically set targets and achieve them by increasing rolling stock, increased wagon acquisitions, running longer trains,” said the Rail Bhavan official.
A closer look at the monthly figures reveals that June and July have been the slowdown months. The railways carried 86.24 mt of freight in July, compared with 83.24 mt in April, but the earnings came down by Rs 743 crore. A drop of 0.6 mt in coal contributed to the losses by Rs 398 crore, followed by food grains and cement which contributed Rs 190 crore and Rs 184 crore, respectively. Similarly in June, the earnings came down by Rs 166 crore, compared to April.
Officials at the Rail Bhavan attributed the monthly decline to overall slowdown of the economy that happens in the rainy season. “The water enters most of the coal mines and there is a drop in the major commodities carried over long distance,” said the Rail Bhavan official. Other officials also argued the fading growth would pick up by November.
Others expressed concern over the lack of political incentive to improve the existing freight network. “There is no political incentive for freight capacity augmentation, it takes 14-15 days for a train from Mumbai to reach Delhi,” added another official.
A Mckinsey report on India’s logistics infrastructure identifies that in the normal course, India’s rail share in freight would decline to 25 per cent in the next few years. In China and the US, the railways have a share of almost 50 per cent.
The annual freight earnings of the railways stood at Rs 84,791 crore for 2012-13, showing 22.95 per cent growth over the previous year. Freight volumes last year were estimated at 1,009.8 mt, up from 969.78 mt in 2011-12 showing an increase of 40.05 mt.