Budget may peg railways’ operating ratio under 96%
Premium- The move will help the national transporter spend more on infrastructure from its own income
NEW DELHI : The Union budget is likely to peg Indian Railways’ operating ratio at 96% or lower, putting the national transporter in a comfortable position to spend more on infrastructure from its own income, said two people aware of the development, seeking anonymity.
Operating ratio—a marker of internal efficiency—measures the ratio of operating expenses to revenue and is an important marker for the railways in the budget. The lower the ratio is, the healthier are the finances.
The upcoming budget will allow the government to mark the operating ratio at 96% or lower as the national transporter’s revenue for FY22 is expected to grow at 12% over FY20—the period of the first and second waves of the covid pandemic.
Railways’ revenue from traffic (both freight and passenger) plummeted in the last financial year due to covid- related mobility restrictions. It will target higher earnings for FY23 without central support in the form of extra grants or loans, they added.
“The target for operating ratio in FY22 is around 96.2%. With marked improvement in revenues and cut on subsidies and non-essential expenditure, its operating ratio is likely to fall further to below 96%. This will allow the railways to deploy funds for key infrastructure projects, which will help improve its efficiency," said one of the two people.
Queries to the finance and railway ministries remained unanswered till press time.
One of the two people quoted above, a former railway board chairman, said that after the covid-related earnings shock, the railways has been consolidating its operations to become more efficient and self-sufficient with a lower operating ratio after many years.
In FY21, Indian Railways got a special loan of ₹80,000 crore from the Centre to keep its operating ratio under check as covid-led disruptions widened the gap between capex and revenue.
Railways’ total revenue for FY22 is estimated at ₹2.17 trillion, up 12% over FY20. Revenue from freight and passenger traffic is expected to grow at 10% over 2019-20.
In FY21, it faced unprecedented challenges from the lockdown. The Centre restricted train services to contain the spread of the virus. As a result, revenue from freight and passenger traffic is estimated to be 16% and 75% less than the budget estimates.
Despite this, operating ratio improved from 98.4% in the previous year to around 97% in FY21 on account of growth in freight earnings and extra central support. The transporter also cut costs as subsidized rail services were withdrawn during lockdown.
The budget for FY23 will look to increase earnings while curbing non-essential expenditure. The railways seeks to complete 100% electrification of broad-gauge lines in FY23, which could reduce its fuel bill by almost ₹10,000 crore.
The focus will also be on increasing the share of non-fare revenue sources in its total revenue through increased monetization of assets, especially on the yet-to-be-operational dedicated freight corridor and sale and commercialisation of railway land.
In FY20, freight and passenger traffic contributed 65% and 29% of internal revenues, respectively. In FY22, the railways expects to earn 63% and 28% from freight and passenger traffic, while the remaining 9% will come from parcel service, coaching receipts, and sale of platform tickets.
In FY23, it seeks to achieve 65% share of freight in its revenue mix by diversifying its freight portfolio and marketing initiatives to capture a bigger share of the goods traffic.
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