The Indian Railways (IR) has seen improved earnings from both freight and passenger traffic in the first 10 months of this fiscal as freight loading improved and more reserved passengers flocked to the railways. This earnings boost, however, has not maintained its enthusiasm at the beginning of the fiscal year, since the railways have had to revise its gross traffic receipts target downwards for 2018-19 by more than Rs 4,000 crore from Budget Estimates (BE). Put simply, the IR will fall short by about Rs 11.3 crore each day of the fiscal year in what it earns from transporting passengers, freight etc, versus the target. Not just traffic receipts, even net receipts (including miscellaneous earnings) are lower by Rs 3,876 crore from the estimates for this fiscal.

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In the revised estimates (RE) for this fiscal, gross traffic earnings are shown at Rs 1,96,714 crore against the budget estimate of Rs 2,00,840 crore. The IR has clearly overestimated its capacity to bring in incremental earnings each year – it has been falling short of the budgeted earnings target for several years in a row now. The Parliamentary Standing Committee on Railways had noted in its 22nd report that the railways have been falling short of its BE earnings target for four successive years since 2015-16. It had exhorted the national transporter to find alternate sources for enhancing revenue, besides freight and passenger earnings.

Anyway, given its downward revision of earnings target year-on-year, should the IR again provide an over-optimistic target of a jump in traffic receipts for 2019-20 from the level seen in the current fiscal? The IR has pegged this target at Rs 2,16,675 crore for 2019-20. This means it must earn almost Rs 20,000 crore more through traffic alone in the next fiscal. Net receipts for the next fiscal have been pegged at Rs 2,16,935 crore.

A senior Railway Board official told DNA Money that earnings from both freight and passengers have seen "healthy" growth in the first ten months of the current fiscal. But when asked whether the earnings matched targets set out at the beginning of the fiscal year and was there any slippage, the official declined to comment.

He said freight loading has increased by about 50 million tonne between April-January 20 this fiscal over the same period a year ago due to increased in demand. "Coal loading is up 9.5%, steel raw material loading is up 11%, fertiliser loading is higher by 4.3%, container traffic is up by more than 10% and cement loading has increased by more than 4%. Freight demand exists and as loading increases, so do earnings," said the official.

On the arrangement with NTPC, this official explained that in 2017-18, NTPC had provided the IR with an advance payment of Rs 5,000 crore against which freight transportation was done in 2018-19. "We are in touch with NTPC for continuing this arrangement in 2019-20 too, though I wouldn't like to comment on whether the advance this year too is Rs 5,000 crore".

This official also said that revenue from the reserved passenger category has increased by about 7% as a number of passengers also increased similarly between April and January 20. The reserved category of passengers is rather small for the IR, at just about 7% of the total passengers were carried, but accounts for almost a third of total passenger earnings. So, a boost in the reserved category of passengers spells good news for the national transporter.

The Budget documents show IR's operating ratio (what it spends to earn each rupee) in 2018-19 at 96.2% even though the ratio was well over 100% till December 2018. The official quoted above declined to comment on this ratio.

Meanwhile, it is pertinent to remember a few home truths about IR and its earnings. First, it earns almost 65 paise of every rupee through freight while subsidising passenger travel through freight earnings. This means each passenger is transported at a loss to the IR. A former chairman of the Railway Board had said last month that this 'social service obligation' of the IR is upwards of Rs 40,000 crore each year – the amount by which passenger fares are subsidised. Hence the inability to raise passenger fares and keeping some freight rates uncompetitive add to the IR's financial woes.

The Railway Board official quoted above denied any move by the IR to either effect an all-round hike in passenger fares or reinstate the flexi-fare scheme, where fares were slated to increase as seats filled up on select premium trains. The flexi-fare scheme has been watered down after myriad protests by passengers and politicians. But it is obvious that unless the IR bites the bullet on passenger fares, its finances are likely to stay unmanageable.