{"id":226809,"date":"2025-01-29T09:56:03","date_gmt":"2025-01-29T09:56:03","guid":{"rendered":"https:\/\/news.talkwithrattan.com\/index.php\/2025\/01\/29\/railway-budget-2025-how-indian-railways-can-improve-its-operating-ratio-how-indias-rail-network-compares-to-china-the-times-of-india\/"},"modified":"2025-01-29T09:56:03","modified_gmt":"2025-01-29T09:56:03","slug":"railway-budget-2025-how-indian-railways-can-improve-its-operating-ratio-how-indias-rail-network-compares-to-china-the-times-of-india","status":"publish","type":"post","link":"https:\/\/news.talkwithrattan.com\/index.php\/2025\/01\/29\/railway-budget-2025-how-indian-railways-can-improve-its-operating-ratio-how-indias-rail-network-compares-to-china-the-times-of-india\/","title":{"rendered":"Railway Budget 2025: How Indian Railways can improve its operating ratio & how India\u2019s rail network compares to China – The Times of India"},"content":{"rendered":"
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Indian Railways’ revenue primarily comes from passenger fares, freight charges, and other non-fare sources.<\/span><\/div>\n<\/section>\n<\/div><\/div>\n<\/div>\n

By Shailesh Agarwal, Partner \u2013 Risk consulting, EY India<\/span>
Railway Budget 2025 expectations: Indian Railways, a state-owned enterprise under the Ministry of Railways, operates the fourth largest national railway system globally, with 132,310 km of tracks. It employs over 1.2 million people, making it the world\u2019s ninth-largest employer. Established in 1951 by merging 42 railway companies, it manages 18 zones. Indian Railways operates a vast network of express, passenger, and freight trains, carrying billions of passengers and millions of tonnes of freight annually. It also manufactures its own rolling stock, including electric and diesel locomotives.<\/p>\n

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\"Number<\/p>\n

Number of Passengers Travelled<\/p>\n<\/div>\n<\/div>\n

Indian Railways’ revenue primarily comes from passenger fares, freight charges, and other non-fare sources like advertising, station redevelopment, and leasing of railway land. Freight transport, being more profitable, contributes a significant portion of the revenue. In the fiscal year 2022-23, freight traffic accounted for around 60% of the total revenue.
Expenditure, on the other hand, is substantial, including costs for fuel, maintenance of tracks, rolling stock, stations, salaries of employees, and pension liabilities. The operating expenses are high due to the vast network, infrastructure needs, and subsidies provided for passenger fares. Despite efforts to improve efficiency and increase non-fare revenues, Indian Railways faces financial strain, with a high operating ratio indicating that a large share of its revenue is spent on operational costs.
Also Read | Railway Budget 2025: Indian Railways to focus on modern trains, upgraded stations & tracks – details here<\/a>
Railway\u2019s revenue from various sources and outlay is as follows:<\/p>\n

\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Revenue<\/td>\n<\/tr>\n
Description<\/td>\n2017-18<\/td>\n2018-19<\/td>\n2019-20<\/td>\n2020-21<\/td>\n2021-22<\/td>\n2022-23<\/td>\n2023-24<\/td>\n<\/tr>\n
Internal sources (Passenger tickets and freight) (A)<\/td>\n1,78,930<\/td>\n1,90,508<\/td>\n1,74,695<\/td>\n1,40,784<\/td>\n1,91,367<\/td>\n2,40,177<\/td>\n2,56,000<\/td>\n<\/tr>\n
Freight earning<\/td>\n1,17,055<\/td>\n1,27,433<\/td>\n1,13,488<\/td>\n1,17,232<\/td>\n1,41,096<\/td>\n–<\/td>\n–<\/td>\n<\/tr>\n
Passenger earning<\/td>\n48,643<\/td>\n51,067<\/td>\n50,669<\/td>\n15,248<\/td>\n39,214<\/td>\n–<\/td>\n–<\/td>\n<\/tr>\n
other earning<\/td>\n13,232<\/td>\n12,008<\/td>\n10,538<\/td>\n8,304<\/td>\n11,057<\/td>\n–<\/td>\n–<\/td>\n<\/tr>\n
Extra budget (B)<\/td>\n55,638<\/td>\n76,816<\/td>\n84,001<\/td>\n1,23,196<\/td>\n71,066<\/td>\n2,45,000<\/td>\n2,40,000<\/td>\n<\/tr>\n
Gross budget (C )<\/td>\n43,417<\/td>\n52,838<\/td>\n67,842<\/td>\n29,926<\/td>\n1,17,270<\/td>\n<\/tr>\n
Total Revenue (A+B+C)<\/td>\n2,77,985<\/td>\n3,20,162<\/td>\n3,26,538<\/td>\n2,93,906<\/td>\n3,79,703<\/td>\n4,85,177<\/td>\n4,96,000<\/td>\n<\/tr>\n<\/tbody>\n\n\n\n\n<\/table>\n<\/div>\n

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\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Expenditure<\/td>\n<\/tr>\n
Description<\/td>\n2017-18<\/td>\n2018-19<\/td>\n2019-20<\/td>\n2020-21<\/td>\n2021-22<\/td>\n2022-23<\/td>\n2023-24<\/td>\n<\/tr>\n
Capital expenditure (A)<\/td>\n1,01,985<\/td>\n1,33,376<\/td>\n1,48,064<\/td>\n1,55,181<\/td>\n1,90,267<\/td>\n2,45,800<\/td>\n2,60,200<\/td>\n<\/tr>\n
Revenue expenditure (B)<\/td>\n1,77,264<\/td>\n1,86,733<\/td>\n1,73,105<\/td>\n1,38,236<\/td>\n2,06,391<\/td>\n2,34,640<\/td>\n2,26,000<\/td>\n<\/tr>\n
Total Expenditure (A+B)<\/td>\n2,79,249<\/td>\n3,20,109<\/td>\n3,21,169<\/td>\n2,93,417<\/td>\n3,96,658<\/td>\n4,80,440<\/td>\n4,86,200<\/td>\n<\/tr>\n<\/tbody>\n\n\n\n\n<\/table>\n<\/div>\n

*Chart compiled and analysed by EY India<\/i><\/p>\n

The operating ratio of Indian Railways, a key financial metric, reflects the percentage of revenue spent on operating expenses. Historically high, it was around 98% in 2022-23. To improve this, Indian Railways is focusing on increasing freight revenue, modernizing infrastructure, and enhancing non-fare revenue sources.
YoY Operating ratio of Indian railways has moved in following trajectory:<\/p>\n

\n\n\n\n\n\n\n\n\n\n\n\n
Year<\/td>\n2018-19<\/td>\n2019-20<\/td>\n2020-21<\/td>\n2021-22<\/td>\n2022-23<\/td>\n<\/tr>\n
Operating Ratio<\/td>\n97%<\/td>\n98%<\/td>\n97%<\/td>\n107%<\/td>\n98%<\/td>\n<\/tr>\n<\/tbody>\n\n\n\n\n<\/table>\n<\/div>\n

*Chart compiled and analysed by EY India<\/i><\/p>\n

In-depth comparison of revenue v\/s expenditure highlights that Indian railway has never been able to meet operational expenses of passenger services with the revenue it generates. Below is YoY losses of passenger services vis-\u00e0-vis profit of freight services which is getting cross subsidized:<\/p>\n

\n\n\n\n\n\n\n\n\n\n\n\n\n
Description<\/td>\n2017-18<\/td>\n2018-19<\/td>\n2019-20<\/td>\n2020-21<\/td>\n2021-22<\/td>\n<\/tr>\n
Profit on freight services<\/td>\n45,923<\/td>\n50,812<\/td>\n28,745<\/td>\n17,252<\/td>\n36,196<\/td>\n<\/tr>\n
Loss on passenger & coaching service<\/td>\n46,025<\/td>\n55,020<\/td>\n63,364<\/td>\n72,169<\/td>\n68,269<\/td>\n<\/tr>\n<\/tbody>\n\n\n\n\n<\/table>\n<\/div>\n

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\"Loss<\/p>\n

Loss on passenger vs profit on freight service<\/p>\n<\/div>\n<\/div>\n

Source: CAG report 2023
Further analysis of revenue expenditure gives us additional insight:<\/p>\n

\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Expenditure<\/td>\n<\/tr>\n
Description<\/td>\n2017-18<\/td>\n2018-19<\/td>\n2019-20<\/td>\n2020-21<\/td>\n2021-22<\/td>\n<\/tr>\n
Staff & pension<\/td>\n67%<\/td>\n66%<\/td>\n68%<\/td>\n72%<\/td>\n69%<\/td>\n<\/tr>\n
Fuel<\/td>\n16%<\/td>\n16%<\/td>\n15%<\/td>\n11%<\/td>\n15%<\/td>\n<\/tr>\n
Other<\/td>\n7%<\/td>\n8%<\/td>\n8%<\/td>\n8%<\/td>\n7%<\/td>\n<\/tr>\n
Stores<\/td>\n4%<\/td>\n4%<\/td>\n4%<\/td>\n3%<\/td>\n3%<\/td>\n<\/tr>\n
Leases charges<\/td>\n5%<\/td>\n5%<\/td>\n5%<\/td>\n6%<\/td>\n7%<\/td>\n<\/tr>\n<\/tbody>\n\n\n\n\n<\/table>\n<\/div>\n

*Chart compiled and analysed by EY India<\/i><\/p>\n

As can be seen from the below table, the loss on passenger and other coaching services has been steadily increasing over the years from 2017-18 to 2020-21 but decreased during the year 2021-22.<\/p>\n

\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
(INR in crore)<\/td>\n<\/tr>\n
No.<\/td>\nClass<\/td>\n2017-18<\/td>\n2018-19<\/td>\n2019-20<\/td>\n2020-21<\/td>\n2021-22<\/td>\n<\/tr>\n
1<\/td>\nAC-Ist class<\/td>\n-165<\/td>\n-249<\/td>\n-403<\/td>\n-719<\/td>\n-406<\/td>\n<\/tr>\n
2<\/td>\nIst class<\/td>\n-35<\/td>\n-39<\/td>\n-38<\/td>\n-43<\/td>\n-45<\/td>\n<\/tr>\n
3<\/td>\nAC 2 Tier<\/td>\n-604<\/td>\n-908<\/td>\n-1,378<\/td>\n-2,995<\/td>\n-1,564<\/td>\n<\/tr>\n
4<\/td>\nAC 3 Tier<\/td>\n739<\/td>\n318<\/td>\n65<\/td>\n-6,500<\/td>\n-698<\/td>\n<\/tr>\n
5<\/td>\nAC Chair car<\/td>\n98<\/td>\n243<\/td>\n-182<\/td>\n-1,079<\/td>\n-473<\/td>\n<\/tr>\n
6<\/td>\nSleeper Class<\/td>\n-11,003<\/td>\n-13,012<\/td>\n-16,056<\/td>\n-20,134<\/td>\n-17,038<\/td>\n<\/tr>\n
7<\/td>\nSecond class<\/td>\n-11,524<\/td>\n-13,214<\/td>\n-14,457<\/td>\n-17,641<\/td>\n-16,393<\/td>\n<\/tr>\n
8<\/td>\nOrdinary Class<\/td>\n-16,568<\/td>\n-19,124<\/td>\n-20,450<\/td>\n-11,438<\/td>\n-15,282<\/td>\n<\/tr>\n
9<\/td>\nEMU suburban services<\/td>\n-6,184<\/td>\n-6,754<\/td>\n-6,938<\/td>\n-7,799<\/td>\n-8,316<\/td>\n<\/tr>\n<\/tbody>\n\n\n\n\n<\/table>\n<\/div>\n

Intervention required from Government pertaining to the railway sector:<\/span>
A big, aged, unanswered question stands in front of us is how we as a nation can fix these poor operation ratios. The data above clearly highlights the broad action points. Summary of the same is as follows:
1. Currently the government is majorly focusing on passenger services which are in loss as compared to freight services that are more profitable as compared to passenger services. MoR can look at increasing passenger fares in accordance with the actual cost of service. The Ministry of Railways (MoR) can take queues from mobile operators and MoRTH. Services are affordable yet scale is also being managed.
2. The revenue expenditure of railways in 2021-22 for the staff and pension was 69%. It’s important to take advantage of technology to optimise the manpower cost of the total revenue spent by MoR
3. Other important actions e.g.<\/p>\n

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  • Closing down lines where the traffic earnings are less than keeping those lines running;<\/li>\n
  • Reducing halts for trains at small stations one extra halt for a train increases the fuel consumption by between 1-2%<\/li>\n
  • Stop investing money in uneconomic ventures e.g. electrification of lines which is not economically justified<\/li>\n<\/ul>\n<\/div>\n

    The Indian government and MoR should ponder over the possibility of fast tracking Public-Private Partnership (PPP) projects to foster private investments. PPP is a proven model which has worked well in the Indian scenario. Like MoRTH, MoR can replicate the success of PPP models we have seen in the highway sector under NHAI, unlocking growth opportunities in the rail sector.
    India vs. China: A Comparative Snapshot<\/span>
    To better understand the challenges and opportunities ahead, it\u2019s useful to compare Indian Railways with China’s railway network. Although China\u2019s railways currently outperform India\u2019s in several areas, including network size and high-speed rail, India\u2019s growing infrastructure, technological innovation, and commitment to modernization hold immense potential for narrowing this gap.<\/p>\n

    \n\n\n\n\n\n\n\n\n\n\n\n\n
    Description<\/td>\nChina<\/td>\nIndia<\/td>\n<\/tr>\n
    Railway network (KM)<\/td>\n1,50,000<\/td>\n70,000<\/td>\n<\/tr>\n
    High speed railway network (KM)<\/td>\n40,000<\/td>\n–<\/td>\n<\/tr>\n
    Max. speed of train (KMPH)<\/td>\n350<\/td>\n150<\/td>\n<\/tr>\n
    Passenger volume (Billion)<\/td>\n10<\/td>\n8<\/td>\n<\/tr>\n
    Freight volume (Billion ton)<\/td>\n4.3<\/td>\n1.6<\/td>\n<\/tr>\n<\/tbody>\n\n\n\n\n<\/table>\n<\/div>\n

    While China\u2019s rail network is more advanced, India\u2019s ongoing reforms and strategic investments in high-speed trains, station redevelopment, and freight infrastructure suggest that India is well-positioned to enhance its rail capabilities significantly.
    Conclusion<\/span>
    Indian Railways stands at the cusp of a major transformation, driven by innovation, infrastructure expansion, and sustainability. The ongoing efforts to modernize the railway system, along with the expected allocation of funds in the Union Budget 2025, will play a crucial role in shaping the future of rail travel in India. With advancements in technology, infrastructure, and safety measures, the next decade promises to witness a leap in the modernization of Indian Railways, making it safer, faster, and more sustainable.
    (The author, Shailesh Agarwal, is Partner \u2013 Risk consulting, EY India. Ajay Jindal, senior consultant, EY India also contributed to the article)<\/span><\/div>\n