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Recently, the Indian Railways announced rationalisation of freight fares. This rationalisation will result in an 8.75% increase in freight rates for major commodities such as coal, iron and steel, iron ore, and raw materials for steel plants. The freight rates were rationalised to ensure additional revenue generation across the network. An additional revenue of Rs 3,344 crore is expected from such rationalisation, which will be utilised to improve passenger amenities. In addition, the haulage charge of containers has been increased by 5% and the freight rates of other small goods have been increased by 8.75%. Freight rates have not been increased for goods such as food grains, flours, pulses, fertilisers, salt, and sugar, cement, petroleum, and diesel. In light of this, we discuss some issues around Railways’ freight pricing.
Railways’ sources of internal revenue
Railways earns its internal revenue primarily from passenger and freight traffic. In 2016-17 (latest actual figures available), freight and passenger traffic contributed to about 63% and 28% of the internal revenue, respectively. The remaining is earned from miscellaneous sources such as parcel service, coaching receipts, and platform tickets.
Freight traffic: Railways majorly transports bulk freight, and the freight basket has mostly been limited to include raw materials for certain industries such as power plants, and iron and steel plants. It generates most of its freight revenue from the transportation of coal (43%), followed by cement (8%), food-grains (7%), and iron and steel (7%). In 2018-19, Railways expects to earn Rs 1,21,950 crore from its freight traffic.
Passenger traffic: Passenger traffic is broadly divided into two categories: suburban and non-suburban traffic. Suburban trains are passenger trains that cover short distances of up to 150 km, and help move passengers within cities and suburbs. Majority of the passenger revenue (94% in 2017-18) comes from the non-suburban traffic (or the long-distance trains).
Within non-suburban traffic, second class (includes sleeper class) contributes to 67% of the non-suburban revenue. AC class (includes AC 3-tier, AC Chair Car and AC sleeper) contributes to 32% of the non-suburban revenue. The remaining 1% comes from AC First Class (includes Executive class and First Class).
Railways’ ability to generate its own revenue has been slowing
The growth rate of Railways’ earnings from its core business of running freight and passenger trains has been declining. This is due to a decline in the growth of both freight and passenger traffic. Some of the reasons for such decline include:
Freight traffic growth has been declining, and is limited to a few items
Growth of freight traffic has been declining over the last few years. It has declined from around 8% in the mid-2000s to a 4% negative growth in mid-2010s, before an estimated recovery to about 5% now.
The National Transport Development Policy Committee (2014) had noted various issues with freight transportation on railways. For example, Indian Railways does not have an institutional arrangement to attract and aggregate traffic of smaller parcel size. Further, freight services are run with a focus on efficiency instead of customer satisfaction. Consequently, it has not been able to capture high potential markets such as FMCGs, hazardous materials, or automobiles and containerised cargo. Most of such freight is transported by roads.
The freight basket is also limited to a few commodities, most of which are bulk in nature. For example, coal contributes to about 43% of freight revenue and 25% of the total internal revenue. Therefore, any shift in transport patterns of any of these bulk commodities could affect Railways’ finances significantly.
For example, if new coal based power plants are set up at pit heads (source of coal), then the need for transporting coal through Railways would decrease. If India’s coal usage decreases due to a shift to more non-renewable sources of energy, it will reduce the amount of coal being transported. Such situations could have a significant adverse impact on Railways’ revenue.
Freight traffic cross-subsidises passenger traffic
In 2014-15, while Railways’ freight business made a profit of about Rs 44,500 crore, its passenger business incurred a net loss of about Rs 33,000 crore.17 The total passenger revenue during this period was Rs 49,000 crore. This implies that losses in the passenger business are about 67% of its revenue. Therefore, in 2014-15, for every one rupee earned in its passenger business, Indian Railways ended up spending Rs 1.67.
These losses occur across both suburban and non-suburban operations, and are primarily caused due to: (i) passenger fares being lower than the costs, and (ii) concessions to various categories of passengers. According to the NITI Aayog (2016), about 77% to 80% of these losses are contributed by non-suburban operations (long-distance trains). Concessions to various categories of passengers contribute to about 4% of these losses, and the remaining (73-76%) is due to fares being lower than the system costs.
The NITI Aayog (2016) had noted that Railways ends up using profits from its freight business to provide for such losses in the passenger segment, and also to manage its overall financial situation. Such cross-subsidisation has resulted in high freight tariffs. The NTDPC (2014) had noted that, in several countries, passenger fares are either higher or almost equal as freight rates. However, in India, the ratio of passenger fare to freight rate is about 0.3.
Impact of increasing freight rates
The recent freight rationalisation further increases the freight rates for certain key commodities by 8.75%, with an intention to improve passenger amenities. Higher freight tariffs could be counter-productive towards growth of traffic in the segment. The NTDPC report had noted that due to such high tariffs, freight traffic has been moving to other modes of transport. Further, the higher cost of freight segment is eventually passed on to the common public in the form of increased costs of electricity, steel, etc. Various experts have recommended that Railways should consider ways to rationalise freight and passenger tariff distortions in a way to reduce such cross-subsidisation.
For a detailed analysis of Railways revenue and infrastructure, refer to our report on ‘State of Indian Railways’.
As of April 28, Odisha has 118 cases of COVID-19. Of these, 37 have been cured, and 1 person has died. In this blog, we summarise some of the key decisions taken by the Government of Odisha until April 28 for containing the spread of COVID-19 in the state.
Before the lockdown
On March 24, the state government enforced state-wide lockdown. Before enforcing it, the state government took several measures for preventing the spread of COVID-19 besides declaring it as a State disaster on March 13. Some of the key measures are summarised below.
Health Measures
The Odisha COVID-19 Regulations, 2020: On March 18, the Government issued The Odisha COVID-19 Regulations, 2020. These regulations are valid for a year. As per these regulations, both government and private hospitals must have dedicated COVID-19 isolation facilities.
Foreign returnees: On March 16, the Government issued an order for foreign returnees to: (i) mandatorily register on COVID portal within 24 hours of their arrival (ii) home quarantine themselves for 14 days. An incentive of 15,000 rupees will be provided for registration and completing home quarantine.
Prisons: On March 17, the Government released precautionary measures to be taken in prisons by authorities and inmates. Newly admitted prisoners should be quarantined in different wards for a week. From March 18, e-Mulakat was allowed in District headquarters jails.
Private Health Care Facilities: On March 19, the Department of Health and Family Welfare issued guidelines for Private Health Care Facilities. The guidelines specify the hospitals to have a COVID-19 specific counter with separate entrance, regulating the entry of visitors, and infection control measures.
Media: On March 21, the Department of Health and Family Welfare issued guidelines to the media not to publish any information or interview the infected persons, their relatives, doctors and support medical staff of them.
Increasing the health workforce in the state: The Department of Health and Family Welfare issued an order on March 23 for the engagement of Staff Nurses and other Paramedics on a short term basis. The hired employees will be provided with additional incentives.
Administrative Measures
State crisis management committee: On March 4, a State crisis management committee was formed to take policy decisions regarding cluster containment.
Prohibiting strikes of employees: On March 21, the government issued an order prohibiting any strikes by employees engaged in the supply of drinking water and sanitation in urban local bodies. The order is valid for six months.
Public and private establishments: On March 21, the government requested all public and private establishments not to terminate the employees or reduce their wages.
Movement Restrictions
Closure of commercial establishments: On March 13, the Department of Health and Family Welfare ordered for the closure of cinema halls, swimming pools, gyms and educational institutions except for holding examinations until March 31.
Suspension of bus services: On March 23, the Department of Health and Family Welfare issued an order suspending intra-state bus services from March 24 and City bus services in all urban local bodies from midnight of March 23.
Lockdown in few districts: On March 21, the government announced lockdown in five revenue districts and eight towns of the state until March 29. The lockdown involved (i) suspension of public transport services (ii) closure of all commercial establishments, offices, and factories (iii) banning the congregation of more than seven people at any public place.
During the lockdown
With two cases in the state, on March 24, the government extended the lockdown to the entire state till March 29. Establishments engaged in the supply of essential goods and services were excluded from this lockdown.
This was followed by a nation-wide lockdown enforced by the central government between March 25 and April 14, now extended till May 3. Before the extension announced by the central government, the state government extended the lockdown in the state till April 30.
Starting from April 20, the central government allowed certain activities in less-affected districts of the country. Further, on April 24, the Ministry of Home Affairs allowed the opening of certain categories of shops with a limited workforce.
Welfare Measures
The Odisha government announced several welfare measures to address the difficulties being faced by people during the lockdown. Key measures include:
Temporary shelter for migrants: On March 28, the government ordered District collectors and Municipal Commissioners to use closed down schools and hostel buildings as temporary shelters for the migrants.
Provision of food in rural areas: On March 30, the government decided to provide hot cooked food for needy people in rural areas at affordable prices. Two meals per day will be provided at Rs 60 for adults and Rs 45 for children per day.
Compensation to family members: The Odisha government will be giving compensation of fifty lakh rupees to the family members of the employees who may die due to COVID-19 and are not covered under insurance scheme of the central government.
Administrative Measures
Ordinances: As the State Assembly is not in session, the government promulgated two ordinances.
The Epidemic Diseases (Amendment) Ordinance, 2020: On April 7, the government promulgated an ordinance to deal with COVID-19 spread. The Ordinance amends Section 2 and 3 of the Epidemic Diseases Act, 1897. The Act provides for the prevention of the spread of dangerous epidemic diseases. The ordinance amends the act to increase the penalty for individuals committing the offences under the act.
The Odisha Contingency Fund (Amendment) Ordinance, 2020: On April 9, the Odisha Government promulgated Odisha Contingency Fund (Amendment) Ordinance, 2020. The ordinance increases the corpus of the contingency fund from 400 crores to 2000 crores. The contingency fund is generally used for meeting any unforeseen expenditure.
Setting up control rooms: On March 26, the Home department set up a round the clock control room for monitoring the issues regarding the implementation of lockdown and stranded Odias in various parts of the country. On March 27 and 28, three control rooms were set up in Bhubaneswar and Delhi for the migrant labourers.
Deferment of salaries: The government announced 70% deferment of salaries of all the elected representatives of the state and 50% deferment for the employees of All India Services such as IAS and IPS.
Implementation of MGNREGS: On March 31, the Department of Panchayati Raj and Drinking Water issued an advisory for the implementation of MGNREGS. Key measures include: (i) Job cards will be provided to people interested in doing unskilled works, (ii) Individual works up to 5 persons is allowed (iii) Hand wash and safe drinking water should be provided at the worksites.
Essential Goods and Services
On March 25, the government authorised certain authorities to issue passes for the free movement of essential goods.
For facilitating the movement of goods, the government allowed the opening of roadside dhabas, and vehicle repair shops situated on Highways. These should be located outside of towns and cities.
Health Measures
Amendments to Odisha COVID-19 regulations, 2020
On April 3, the government added following provisions to the Odisha COVID-19 regulations, 2020: (i) additional duties and responsibilities of hospitals and local bodies such as infection control measures in hospitals among others. (ii) state government or empowered officers can declare any government or private hospital as COVID hospital.
On April 9, wearing masks were made compulsory for the people stepping out their houses and were included in the regulations.
On April 16, the government included the ‘prohibition of spitting in any form in public places’ into the regulations.
Short term engagements: On March 27, the government invited senior professionals having expertise in various sectors such as health care management, international logistics, and charities to work as Honorary Advisors to Government on a voluntary basis. The government issued an order for engagement of microbiologists on a short term basis.
Training of MBBS students- On March 28, the government decided to train the MBBS students of all medical colleges studying 7th, 8th and 9th semesters and deploy them if there is a rise in the number of cases in future. Training of government establishments was taken up in the first phase. Private colleges were also requested to train doctors and students simultaneously.
Additional resources: On April 6, the State Executive Department authorized the Principal Secretary, Department of Health to requisition the services of anybody having expertise in public health care management. When the need arises, the government can use the services of healthcare professionals such as doctors, nursing staff from government or private organisations to assist the state government.
Support to personnel fighting the Pandemic: On April 22, the government announced certain measures to support the personnel fighting COVID-19 in the state. They are
The Government will invoke the National Security Act, 1980 against the individuals causing violence to any member of the medical community such as doctors, nurses, and health workers.
While on duty, if any government employee dies due to COVID-19, the family will get the salary until the retirement date of the deceased employee.
The cremation of the individuals dying due to COVID-19 on duty will be honoured by the state as usually accorded to the martyrs.
Handling the return of migrants from other parts of the country: On April 19, the Revenue and Disaster Management department issued an advisory to Gram Panchayats and Urban Local Bodies for handling the influx of migrants from other parts of the country, once the lockdown is over. The advisory has the following steps.
(i) All local bodies should have registration facilities. People returning from other states should register through their relatives or family members.
(ii) All persons arriving from various states will be quarantined for 14 days.
(iii) An incentive of 2,000 rupees will be provided to the people for completing the quarantine period in the quarantine facilities.
For more information on the spread of COVID-19 and the central and state government response to the pandemic, please see here.
