Functioning, finances of Indian Railways are in a mess, say CAG reports

Under Minister Piyush Goyal, the financial situation and planning of the Indian Railways has worsened. It has consistently fallen short of the projected earnings for the last five years. Having failed to meet its expected internal revenue, the Railways relied on extra-budgetary resources (EBR) such as LIC for financing its own projects, the Comptroller and Auditor General has said in one of the three reports on the Railways.

The Indian Railways resorted to ‘window dressing’ in 2018-19 to show its Operating Ratio (OR) in a favourable light. OR is the ratio of working expenses to traffic earnings. A higher ratio indicates a poorer ability to generate surplus.

The Railways showed that against the target of 92.8% in the budget estimate, the OR of Railways was 97.29% in 2018-19. This meant that railways spent Rs 97.29 to earn Rs 100. As compared to the OR of 98.44% during the previous year, there was marginal improvement in 2018-19.

This was only because the Railways included advance freight of Rs 8,351 crore (pertaining to 2019-20) into the earnings of 2018-19. If this amount had not been included, the OR would have been 101.77% instead of 97.29%. This means that the Railways spent Rs 101.77 to earn Rs 100 and that the Railways spent more than it earned in 2018-19. Now, with the COVID-19 disruption, its financial situation will worsen.

The CAG observed that the net surplus in 2018-19 was Rs 3,773.86 crore and the Railways would have ended with a negative balance of Rs 7,334.85 crore but for receipt of advance freight and less appropriation to Depreciation Reserve Fund and Pension Fund.

The OR of ten zonal Railways (Metro Railway/Kolkata, North Eastern, Eastern, Northeast Frontier, Southern, South Western, Northern, North Western, Central and Western Railways) was more than 100% during 2018-19, implying that their working expenditure was more than their traffic earnings.

Not all zones fared badly, however. The OR of seven zonal Railways (East Central, South Central, South Eastern, North Central, West Central, South East Central and East Coast Railways) ranged between 99% and 52%.

The finance audit report also questioned the use of EBR for financing projects since 2015. Railway Board violated their own guidelines for identification and sanction of projects for funding from EBR, stated the CAG. Life Insurance Corporation (LIC) had committed Rs 1.50 lakh crore over five years; however only Rs 16,200 crore could be raised from LIC due to regulatory constraints.

The Railways the obtained shortfall of Rs 49,164 crore by raising funds through market borrowings which have a higher rate of interest.

Moreover, several of the projects for which the money was raised were delayed. According to CAG, 521 projects were identified to be funded from EBR during 2015-19, but 126 projects did not take-off due to various reasons including delay in sanctions, changes in plan and non-completion of survey.

Scrutiny of the remaining 395 projects funded from EBR revealed that 268 projects were incomplete as of March 31, 2019. This blocked Rs 48,536 crore EBR funds, in addition to defeating the objective of generation of revenue for debt servicing. CAG has advised the Ministry of Railways to “ensure assessment of requirement of funds based on realistic and timely projections from Zonal Railways” to avoid these delays.

The gross traffic receipts of the Indian Railways have been falling short under the Modi government, observed the CAG report. GTR is the total revenue through all means including ticket sales, rents and interest.

In 2015-16, the GTR was lower than the budget target for that year by more than Rs 19,000 crore, by more than Rs 19,500 crore in 2016-17; by Rs 8,500 crore in 2017-18; and by nearly Rs 11,000 crore in 2018-19, highlighted a news report.

No improvement in freight traffic

An audit of the freight earnings shows that Railways has not been able to achieve substantial improvement in freight. Only eight Private Freight Terminals (PFT) were able to generate business as projected in the Detailed Project Reports.

PFTs policy were introduced to enhance the Railways’ share in the overall transport chain through private sector participation. 121 applications were received for setting up of PFTs since the introduction of the policy in 2010, of which only 58 PFTs could be set up in 13 zonal Railways.

In 2017, the then Minister of Railways, Suresh Prabhu, launched ‘Mission hundred’ under the Railways would develop/commission at least hundred freight terminals on private investment in the next 2 years.

The CAG report highlights a shortfall of 41% in setting up of private terminals and 71% in generation of freight was noticed against the target.

The CAG report advised the Railways to re-engineer the scheme with adequate financial incentives so that tariff charged by PFTs is competitive. The Railways also needs to simplify regulations and create a single window clearance system for the entire zone, underscores the CAG.

CAG observed that during 2018-19, the total receipts increased by 6.47% as compared to 8.19% increase in 2017-18, a dip of almost 2%. There was heavy dependence on transportation of coal which constituted 46.47% of freight earnings. Any shift in bulk commodities transport pattern could affect the freight earnings significantly.

During 2017-18, the profit from freight traffic (Rs 45,923.33 crore) was utilised to compensate the loss of Rs 46,024.74 crore on operation of passenger and other coaching services. The loss of Rs 101.41 crore in passenger operations was left uncovered during 2017-18.

Utilisation of locomotives

The CAG audit had revealed that the locomotive requirement was decided not on the basis of actual requirement, but for utilising the production capacity. This has led to more numbers of diesel locomotives in the system than required. Indian Railways spent Rs 52,198.21 crore on the production of locomotives during 2012-18 through its four production units.

The main criteria adopted by the Railway Board for the assessment of requirement of locomotives and production planning were the actual production of locomotives in the previous years. There was no structured methodology used for assessing the requirements of locomotives based on specifically laid down parameters.

Locomotives were allotted to zonal Railways without keeping in mind their requirements and infrastructure available for maintenance. This has led to underutilisation of locomotives by zonal Railways.

Due to lack of quality control, use of inferior material, poor supervision and inadequate internal controls led to unscheduled/ out of course repairs of 17,530 diesel and 22,078 electric locomotives. The CAG audit observed that during 2012-17, 46% of the locomotives failed within 100 days of their commissioning.

Out of 696 newly commissioned diesel locomotives, 33% (232 locos) failed within 50 days of their commissioning. Similarly, 14 % (94 locos) failed within 100 days of their commissioning.

Out of 330 newly commissioned electric locomotives, 23% (77 locos) and 21% (68 locos) failed within 50 days and 100 days respectively of their commissioning.

The audit highlighted that 648 new diesel and 417 new electric locos failed on 1,315 and 459 occasions respectively within the warranty period.

When questioned about this, the Railways reported that a large number of vendors were blacklisted. The CAG has advised the Railways to monitor the quality of material supplied for manufacturing of locomotives to avoid frequent failures. This is in addition to establishing an effective monitoring mechanism for early repair/replacement of failed locomotives.

The audit observed that the actual growth rate in goods and passenger traffic was not factored into production plans of locomotives. It was seen that the projected growth rate was 10.8% for passenger kilometres and 7.77 to 8.08% for Million Tonne Load of freight. Against this, the actual growth rate was only 0.24 to 3.96% for passenger kilometres and 0.36 to 4.37 per cent for freight load.

Thus, the actual growth rates were much lower than the projected rates and this led to projection of requirement of locomotives higher than what was actually required.