Indian Railways Slams Brakes On Spending, Defers New Project Works

The Railway Board has asked all units and zones to curb spending on works that aren’t absolutely essential.

Belt-tightening orders from the Railway Board ask officials to restrict expenditure only to works necessary for safe operations. Zones and production units have been also asked to review projects and production plans.

Additional Member/Works and Additional Member/Revenue from the Railway Board will take the final call on the criticality of every project, according to the circular, dated 27th July 2020.

Allocations not utilized from budgets of 2018-19 and 19-20 are also to be suspended.

The move could affect many ongoing works in this financial year. Projects meant to ease bottlenecks and enhance system capacity are likely to see delays. “Except electrification and safety works, all other projects are likely to be kept in abeyance,” said a senior railway official who did not wish to be identified.

It is not yet clear if projects executed with external financing will be affected.

Pandemic Revenue Deficits Hit Indian Railways Hard

Indian Railways faces a large revenue shortfall this financial year as COVID-19 pandemic economic toll starts to show. Both freight and passenger revenues have seen sharp declines since the nationwide lockdown was imposed in March 2020. “It could take another five or six quarters for things to go back to normal.” said the official.

Passenger revenues collapse

Scheduled passenger services have now been inoperative for over four months. Earlier statements from railway officials suggest that full resumption of services is unlikely till the pandemic situation improves. This will leave a large hole in the organisation’s passenger service revenues.

IR’s passenger services exceeded Rs. 51,000 crores in FY 2018-19. Freight revenues for the same year crossed Rs. 1.22 lakh crores.

In June, IR announced 115 pairs of special passenger train services. “The special trains are operating at an average of 75% occupancy.” Vinod Kumar Yadav, Chairman of the Railway Board (CRB), said in a press conference yesterday. However, these special trains are unlikely to generate more than a fraction of 2019-20 revenues.

CRB Yadav suggested that total passenger revenues for the year could end up at just 10-15% of the previous year’s totals.

Freight volumes limping back to normalcy

A silver lining is beginning to show on the freight side. Goods traffic volumes are gradually heading back to last year’s levels, according to CRB Yadav. He claimed that the volume of goods loaded on 27th July had equalled volumes on the same day in the previous year.

To make up for the hole in passenger revenues, the Railway Board has set IR a target to increase freight revenues by 50% over 2019-20. Several measures are being adopted to shore up freight traffic. This includes setting up of business development units at zonal and divisional levels.

Officials are now expected to go out and seek freight business from the private sector. Despite efforts, an increase in goods traffic by 50%, especially in a year most sectors expect sharp declines, is unlikely. “It is a very difficult target,” the CRB admitted.

High fixed costs to remain despite revenue collapse

Despite the dip in revenues, fixed costs in the form of salaries, pensions and establishment expenses stay the same. The public transporter has announced no layoffs or pay cuts for its 1.2 million-plus workforce.

IR spent approximately Rs. 1.34 lakh crores in 2018-19 on wages. Total revenue for the year was Rs. 1.9 lakh crores.

Yesterday’s CRB press conference, organized at short notice, was meant to demonstrate IR’s focus on increasing freight revenues. However, the PR effort may also be a pre-emptive strike against news of a sledgehammer being taken to its spending plans.

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