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.

Railways fig1

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.

Figure 2_Railways

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.

Fig 3_Railways

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.

Last week, the Assam Legislative Assembly passed the Assam Cattle Preservation Bill, 2021.  The Bill seeks to regulate the slaughter and transportation of cattle and the sale of beef.   It replaces the Assam Cattle Preservation Act, 1950, which only provided for restrictions on cattle slaughter.  In this post, we examine the Bill and compare it with other state laws on cattle preservation.  For a detailed analysis of the Bill, see here.

Cattle preservation under the Bill

The Bill prohibits the slaughter of cows of all ages.  Bulls and bullocks, on the other hand, may be slaughtered if they are: (i) over 14 years of age, or (ii) permanently incapacitated due to accidental injury or deformity.  Inter-state and intra-state transport of cattle is allowed only for agricultural or animal husbandry purposes.  This requires a permit from the competent authority (to be appointed by the state government).  Further, the Bill allows the sale of beef and beef products only at certain locations as permitted by the competent authority.  No permission for such sale will be granted in areas that are predominantly inhabited by Hindu, Jain, Sikh and other non-beef eating communities, or within a five-kilometre radius of a temple or other Hindu religious institution.

Provisions of the Bill may raise certain issues which we discuss below. 

Undue restriction on cattle transport in the north-eastern region of India

The Bill prohibits the transport of cattle from one state to another (or another country) through Assam, except with a permit that such transport is for agricultural or animal husbandry purposes.  This may lead to difficulties in movement of cattle to the entire north-eastern region of India.  First, the unique geographical location of Assam makes it an unavoidable transit state when moving goods to other north-eastern states.  Second, it is unclear why Assam may disallow transit through it for any purposes other than agriculture or animal husbandry that are allowed in the origin and destination states.  Note that the Madhya Pradesh Govansh Vadh Pratishedh Adhiniyam, 2004 provides for a separate permit called a transit permit for transporting cattle through the state.  Such permit is for the act of transport, without any conditions as to the purpose of transport.

Unrestricted outward transport of cattle to states that regulate slaughter differently from Assam

The Bill restricts the transport of cattle from Assam to any place outside Assam “where slaughter of cattle is not regulated by law”.  This implies that cattle may be transported without any restrictions to places outside Assam where cattle slaughter is regulated by law.  It is unclear whether this seeks to cover any kind of regulation of cattle slaughter, or only regulation that is similar to the regulation under this Bill.  The rationale for restricting inter-state transport may be to pre-empt the possibility of cattle protected under the Bill being taken to other states for slaughter.  If that is the intention, it is not clear why the Bill exempts states with any regulation for cattle slaughter from transport restrictions.  Other states may not have similar restrictions on cattle slaughter as in the Bill.  Note that other states such as Karnataka and Chhattisgarh restrict outgoing cattle transport without making any distinction between states that regulate cattle slaughter and those that do not.

Effective prohibition on sale of beef in Assam 

The Bill prohibits the sale of beef within a five-kilometre radius of a temple (which means an area of about 78.5 square kilometres around a temple).  This threshold may be overly restrictive.  As per the 2011 census, the average town area in Assam is 5.89 square kilometres (sq km) and the average village area is 1.93 sq km.  The three largest towns of Assam by area are: (i) Guwahati (219.1 sq km), (ii) Jorhat (53.5 sq km), and (iii) Dibrugarh (20.8 sq km).  Hence, even if there is only one temple in the middle of a town, no town in Assam – except Guwahati – can have a beef shop within the town area.  Similarly, if a village has even one temple, a beef shop cannot be set up in a large area encompassing several adjoining villages as well.  In this manner, the Bill may end up completely prohibiting sale of beef in the entire state, instead of restricting it to certain places.

Note that certain states such as GujaratRajasthanUttar Pradesh and Haryana completely prohibit the sale or purchase of beef within the state.  However, they also completely prohibit the slaughter of cows, bulls and bullocks.  This is not the case under the Bill, which only places a complete prohibition on slaughter of cows.  Further, in places such as Delhi, municipal regulations prohibit the sale of meat (including beef) within 150 metres from a temple or other religious place.  This minimum distance requirement does not apply at the time of renewal of license for selling meat if the religious place comes into existence after the grant of such license. 

The prohibition on sale of beef in areas predominantly inhabited by communities identified based on religion or food habits (non-beef eating) may also have an unintended consequence.  With the food typically consumed by a community becoming unavailable or available only in select locations, it may lead to the segregation of different communities into demarcated residential areas.  As per the 2011 census, the population of Assam comprises roughly 61% Hindus, 34% Muslims, and 4% Christians.

Onerous requirement for the accused to pay maintenance cost of seized cattle

Cattle rearing is essentially an economic activity.   Under the Bill, cattle may be seized by a police officer on the basis of suspicion that an offence has been or may be committed.  Seized cattle may be handed over to a care institution, and the cost of its maintenance during trial will be recovered from such persons as prescribed by the state government through rules.  Note that there is no time frame for completing a trial under the Bill.  Thus, if the owner or transporter of seized cattle is made liable to pay its maintenance cost, they may be deprived of their source of livelihood for an indefinite period while at the same time incurring a cost.

Cattle preservation laws in other states

The Directive Principles of State Policy under the Constitution call upon the state to prohibit the slaughter of cows, calves, and other milch and draught cattle.  Currently, more than 20 states have laws restricting the slaughter of cattle (cows, bulls, and bullocks) and buffaloes to various degrees.   Table 1 below shows a comparison of such laws in select states of India.  Notably, north-eastern states such as Arunachal Pradesh, Meghalaya, Mizoram and Nagaland do not have any law regulating cattle slaughter.