Pre-Budget Interview: Train18 Innovator Sudhanshu Mani Raises Concerns Over Railways Finances, Lack Of High Speed Tracks
Sudhanshu Mani, former general manager of ICF, Chennai raises concerns over Indian Railways finances and details what the Union Finance Minister should focus on in her budget speech tomorrow.
Sudhanshu Mani is a former officer of the Indian Railway Service of Mechanical Engineers, where he served for 38 years.
He retired as the general manager of the Integral Coach Factory, Chennai, where Train 18 was built from design to development in record 18 months under his leadership.
On the eve of the annual budget presentation, Swarajya spoke with him to take stock of the Railways’ financial situation and various projects, and what should the government focus on in tomorrow’s announcement.
Here are the edited excerpts:
It’s been six years since the railways and general budgets were merged. Enough time has passed to analyse whether it has been a good thing or not for the Indian Railways. What’s your judgement on the matter?
We cannot say that the troubles Indian Railways (IR) is going through today is a result of the merger of the budgets. There are so many other reasons for that. But certainly, the focus that IR used to get earlier has been completely lost and it now gets three to four paragraphs in the main budget speech and, thus, reduced to the sidelines.
The benefit IR has got is that earlier it would pay dividends to the Government of India (sometimes it would be deferred), but now you get budgetary support. But, overall, the idea is that IR should be self-sustainable and the need for budgetary support should be minimal, unless there are large investments in new projects, and there is a perception that it has led to complacency in IR.
You said there are other reasons for the present troubles with IR. What are those?
The primary problem is the deteriorating operating ratio (OR), that is, working expense divided by gross revenue, a measure of financial health.
The expense includes administrative, staff, repair, maintenance, operations, fuel, energy costs, etc., and contribution to the pension and depreciation reserve funds (DRF).
Now, for the last two years, expenses have gone up, whereas revenues have increased only at a snail’s pace, such that OR, which used to be in the 90s, climbed to around 115 in 2019-20.
So, what the government did was, it met the contribution to the pension fund with borrowings or budgetary support and reduced the contribution to DRF drastically and artificially showed OR around 98. In 2020-21, the actual OR climbed even higher, to 131.
Part of the problem this year was the pandemic, but in 2021-22 again, according to projected revenues so far, OR is expected to be around 120. So, the trend points to a continuing deterioration.
Now, there are positives, like a good jump in capital expenditure with investments in infrastructure, though it’s yet to be seen if these investments would be remunerative, because a meaningful analysis of cost-benefit is not done by the IR, particularly no post-audit after project completion.
Nonetheless, it’s a good thing to invest in infrastructure to drive the growth of the railways and the national economy. However, one big negative of it is that the interest burden of all the investments that IR started making 2015 onwards by borrowing will start impacting in the coming years after the initial moratorium ends. With OR already so high, this could put IR in a financial trap in the near future, and this should receive a big focus in the budget.
The silver lining is that freight traffic has moved up and the earnings in the first nine months of the current fiscal year are 16 per cent and 20 per cent higher than pre-pandemic 2019-20 FY.
Another good news is, the commodity mix in freight movement is more diverse now, which means you can do a re-look at freight tariff rationalisation to charge less for certain commodities to encourage traffic.
For example, automobile movement, which is a good freight earner, has started in a big way over IR, and the share of coal in the overall mix has reduced. So, this is a good sign towards winning back some modal share from road.
But a lot needs to be done on this front for even higher earnings. Worldwide, the cost of logistics or transportation is 6-8 per cent of the value of goods moved. On IR, it’s 14 per cent. So, there is room for improvement and being more economical there, and I understand IR is serious about this and they intend to bring it down to 11 per cent.
Another aspect, as of now: the contribution of dedicated freight corridors is very small, but when they open up fully, IR can expect a higher level of traffic due to an improved ease of transportation and speed of delivery.
One of the positives you mentioned is that capital expenditure has increased of late. I believe it has doubled over the last few years. Where is most of that money being deployed?
The major investments are happening in new lines, doubling of tracks, traffic facilities, railway under/over bridges, electrification, etc. But as I said, we don’t know how much of this is actually remunerative. There should be a cost-benefit analysis after the project completion as well, to study the impact. Because the new investment is not being done using internal revenues, but with borrowings, and you have to pay interest on it. So, IR has to be economical with the money.
Now, take electrification. Is it good that we decided to move towards 100 per cent green mobility, which no country has done?
There are huge upfront costs, but the benefit rests in lower operational costs later. However, IR should be judicious in its approach because there are still 4,000 to 5,000 diesel locomotives worth some Rs 20,000 crore-plus in remnant value and we just cannot scrap them.
So, while moving towards electrification, it has to be done in a judicious way and the trade-offs need to be evaluated and kept in mind. Moreover, with electric traction being taken to branch lines with low levels of traffic with high fixed costs of energy, gradually all the advantages of lower energy costs would flatten out.
Since fiscal health is a big issue with IR now, what can be done as far as passenger fare rationalisation is concerned? Because it’s also a hot political potato and raising the fares is seen as anti-poor, and no government can afford to err on the side of sound economics there.
I agree that you can’t increase the fares for the lower classes in IR by more than 5 per cent to 15 per cent. That’s understandable and, I would say, a necessary social requirement. But ticketing prices have gone up during Covid and people are getting used to that, even if grudgingly. One hopes that at least these fares can be maintained at this level.
Now, let’s come to the AC third and AC chair car classes, both of which are actually remunerative for the IR. Here, there is room to increase the number of berths and seats in a coach and that should be done. Even if you decrease the fare judiciously, it will still be profitable. Some might argue that there will be discomfort with a reduction in space, but they have AC comfort, so not a big issue.
As far as the AC second and first classes are concerned, these are marginally in loss. So, fares should be increased, but the service has to be improved as well. People will tolerate even a higher fare if there is good service. See how well Vande Bharat trains are doing. And if people shift to air travel, then let them.
Replace the AC second class and first class coaches with profitable third AC coaches with increased seats. There is no point in subsidising rich people or operating loss-making coaches.
As ICF general manager, you delivered Train 18 (now popularly known as Vande Bharat) from concept to design to full development and deployment in just 18 months. But after those couple of trains, we haven’t seen much development on this front. It’s just a matter of production and slight improvements. What’s the issue there?
Let’s not dwell into the past and forget the negativity that happened earlier. Since the new minister has come, he has put a lot of stress on it and the Prime Minister is also keen and I believe an order for over 104 trains has been placed already. Even if these are introduced at the rate of 25 trains per year, we will have 75 of these by the end of 2024. That would be a remarkable achievement and the new minister is eager to execute this. If it happens, it will be good for IR, because these trains will be revenue earners.
But we don’t have tracks where trains can run at 160 kph, so what’s the use of all these when the required infrastructure is not being focused on and there is talk of aluminium coaches and 200 kph trains?
Yes, that's something IR has to seriously work on. Only the Delhi-Agra track can support 160 kph trains in a small part. Even the current Vande Bharat trains running on the Delhi-Varanasi corridor are running at 130 kph between Delhi and Prayagraj and at 110 kph on the Prayagraj-Varanasi section. If it was running at its full potential, the travel time would’ve been even less.
So, rather than making grand announcements, there should be clear targets that we will be preparing X tracks by Y fiscal year that can support 160 kph trains. Just build Delhi-Mumbai and Delhi-Howrah (tracks) this year. If you have already ordered 100 such trains, tracks also need to be built for these.
As far as the 200 kph trains and aluminium coaches are concerned, I believe that’s all hype, but if the government is serious, it should task the ICF to build a prototype so that at least we have it ready until we come to building 200 kph train tracks. ICF can do it. There is no need to import.
There is also a huge safety concern with ICF coaches and some accidents every now and then surface, which increases the demand to replace these coaches with LHB coaches. What should be done on that front?
ICF coaches have served the IR well. I don’t agree with those who say it’s a coffin on wheels because if you look at the number of accidents and the sheer number of passengers these carry every day, it’s not a bad track record.
The record of safety of IR has improved in recent years. However, even one accident is horrible and every life is precious, particularly in these days of quick perception due to very active social media. So, transitioning to comparatively safer LHB coaches has to be done. There are some 40,000 ICF coaches out there. The current production of LHB coaches can be increased to around 8,000 annually without any infra(structure) input at railway production units. So, the IR can target to retire and replace at least half of the ICF coaches in the next three years and relegate the rest to slow-moving services and complete their full life.
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