Inefficiency in rly cost structure leads to losses: Niti Aayog
Fare hike is not the only way to deal with losses of Indian Railways in passenger services business, Niti Aayog said, revealing that the "inefficiencies" in the cost structure also contribute to it.
New Delhi: Fare hike is not the only way to deal with losses of Indian Railways in passenger services business, Niti Aayog said, revealing that the "inefficiencies" in the cost structure also contribute to it.
The government's apex policy-making body suggested that the national transporter will have to work on cost optimisation measures and enhancing its non-fare revenue.
"... Inefficiency in Indian Railways (IR) cost structure also significantly contributes to the losses in passenger service business and hence, tariff increase cannot be the only mechanism to address such social costs," the study noted.
The note -- Impact of Social Service Obligations by Indian Railways -- was prepared by Niti Aayog Member Bibek Debroy and an Officer on Special Duty, Kishore Desai.
According to the study note, the losses in passenger services business has to be necessarily complemented by cost optimisation and non-fare box revenue enhancement strategies with varying levels for various classes.
As per the data, in 2014-15, lower tariff levels in non-suburban services (across all classes -- AC, SL, 2nd class, etc) accounted for about 73 per cent of the total social service obligation costs, the study revealed.
At an overall level, IR's estimates indicate that the financial impact of under-recoveries due to lower tariff in non-suburban services is expected to be about Rs 28,000 crore while a review indicates that this could more reasonably put at around Rs 22,000 crore, considering the competitive market dynamics in estimation, it said.
It stated that for AC classes, the average tariff level is higher than equivalent fares for an AC bus service.
"Hence, it is likely that losses in AC class are attributable to higher base cost structure of IR than its fare structure," the study said.
Indian Railways will accordingly need to explore alternative cost optimisation and expenditure control strategies to recover such losses, it suggested.
The analysis of the data also indicates that about 80 per cent of losses in these classes could be attributable to lower tariff levels while the balance 20 per cent are more likely to be linked to Indian Railways' cost structure.
But it is categorical that while lower tariffs and concessions substantially contribute to losses in passenger business and hence account for social service costs, they are not the only factors.
In a competitive market where demand for transport is elastic, Indian Railways will have a limitation on increasing fares (i.E revenue side) which would be driven by competition, the study said.
"Hence, computation of under-recoveries will have reference to IR's ability to charge fares in a competitive market rather than its cost structure determining its under-recoveries," it added.