Wednesday, June 19, 2013
Last Updated: 18 Jun 10:57 AM IST
12 November 2012
While a lot of noise is made whenever higher passenger fare is mulled, a studied rise in freight rates charged by Indian Railways should not be ignored either for the sake of the common man, writes subhash ranjan thakur
Almost every railway manager in India, whether serving or retired, waits for the budget season with a lot of apprehension. This is not so much a tightening of the gut for the political class’ annual ritual of shedding crocodile tears and making unhealthy promises as a fear that the necessity of taking a hard look at raising freight rates may be overlooked yet again.
It happened in 2012 as well. The brouhaha over Mr Dinesh Trivedi demitting office for daring to increase passenger fares put paid to a serious debate on the necessity of a hefty increase in fright rates a few days ahead of the general Budget. Politicians of all hues appeared to be satisfied with the status quo over passenger fare save in the pricier carriages, glibly forgetting that whereas the impact of an increase in passenger fare is borne by the passenger himself/herself, the impact of a hike in freight rate is felt by all, even the poorest of the poor who might never have taken a train ride.
A hard look at the myth of politicians’ ‘concern for the aam admi’ while fixing rail tariff is absolutely necessary and a dispassionate analysis of freight rates over the years is in order. If the fiscal period from April to July is considered, Indian Railways (IR) registered a hike of almost 25 per cent for carrying the same quantum of freight traffic for the same distance. IR’s earning per net tonne kilometre i.e. the revenue from transporting 1 tonne of goods traffic for 1 km has gone up from Rs 1.056 to Rs 1.32 in a year. The increase is more pronounced if some commodities that affect the aam admi are considered. For example, for coal, the earning per net tonne kilometre has gone up from Rs 1.016 to Rs.1.399 ~ an increase of 31.8 per cent; for cement, from Rs 1.069 to Rs.1.366 ~ an increase of 27.8 per cent, for iron & steel (finished product) from Rs 1.171 to Rs 1.53, an increase of 30.67 per cent. For fertiliser, the unit tariff has gone up from Rs 0.9 to Rs.1.18 ~ an increase of 31.1 per cent and for food grain, from Rs.0.80 to Rs.1.07, an increase of 33.9 per cent. Surely an increase of such an extent is bound to add to the end price. So, where does the concern for common man come into play?
For a discussion on the matter, the unit tariff of these commodities for certain base-years might be relevant. For example, during 2003-04 and 2008-09, the increase in unit tariff for food grain was 35 per cent. For fertiliser it was 29 per cent, for cement, 16 per cent; for iron & steel, there had been practically no increase and for coal, it was 15 per cent. Therefore, during the said periods, when Left parties had a chance to considerably influence government policy, there had been a very substantial increase in the freight rate of food grain and fertilisers.
In July 2012, as compared to 2008-09 figures, the unit tariff of transporting fertiliser was found to have gone up by 57 per cent, that of food grain 52 by per cent, that of cement by 43 per cent, that of coal by 57 per cent and that of iron and steel by 43 per cent. For all commodities transported by railways, the unit tariff of carriage (transportation) was Rs 0.72 in 2003-04 as compared to Rs 0.71 in 1998-99, Rs 0.97 in 2008-09 and Rs 1.32 at present. Interestingly, the increase was about 2 per cent during five years of NDA rule as compared to 34 per cent during the tenure of UPA I and 36 per cent since the UPA II came to power in 2009. Going further back, the increase was 60 per cent from 1990-91 to 1995-96 ~ the years of so-called economic liberalisation.
Barely a few years ago, IR made it clear that all commodities could not be loaded to full capacity of a wagon and therefore, for different commodities, different “weight conditions” needed to be prescribed in the tariff. This is no longer the case. At present, irrespective of commodity, the minimum chargeable weight has been fixed for different types of wagons.
This system, based on principle of “opportunity cost” might be economically prudent for IR but there is no denying that in many cases, the impact of “idle freight” brought about by loading less than the prescribed weight limit is borne by the end-user. This has increased the effective freight rate per unit in a majority of cases. Recently, this chargeable weight per wagon was increased by another tonne, thereby further increasing the quantum of “idle freight” for many commodities. As such, in many cases, the actual freight paid per unit is more than what statistics suggest. The consignors and consignees are not making much noise as they are usually not the end users and the impact of the effective increase of freight rates is passed on to the consumers, adding fuel to the raging fire of inflation.
In all major railway systems of the world, when the unit cost of transportation comes down, it is customary to pass on some of the benefit in the form of lower tariff to the end-user. Exactly the opposite is happening in India. Political expediency dictates that passenger fare remains untouched while at the same time, expenditure on unviable projects is allowed to mount. To balance the budget, freight tariff is increased despite lower unit cost of transportation of goods. IR’s budget can probably be balanced much better if expenditure on mindless expansion projects lacking revenue potential is curtailed. If that is done, there would be no need to increase passenger fare and freight tariff can be increased only moderately.
The railway administration can afford to be complacent because in a country as vast as this, there is no viable alternative mode of transportation and passengers are stuck with IR despite its unreasonable tariff structure. Late management guru Prof Theodore Levitt, in his seminal essay Marketing Myopia, pointed out that American railroads started losing traffic when they forgot that they were in the business of transportation and not necessarily railway transportation. This is probably not applicable in the Indian context as there is no alternative to railways for bulk goods transportation. But IR’s market share has somewhat diminished since some competition has come up. And, IR can thank the government’s Golden Quadrilateral road project for that.
It is apprehended that IR would continue to increase mindless frivolous expenditure irrespective of economic realities to satisfy political demands. Passengers cannot be asked to share the burden and therefore, freight tariff would always be the target. Unlike many other countries where other modes of transportation are available, in India, IR’s monopoly is both its strength and weakness. Continuous increase in freight tariff would add to the price paid by the end-user. A time will certainly come when better infrastructure will encourage passengers/freight handlers to consider other means of transportation. IR will do well if it starts changing its policy keeping that in mind.
The writer is a retired member of the Indian Railways Traffic Service and a former additional member, Railway Board