India Intelligence Report

   Railways Loses to Budget Airlines


The advent of budget airlines has eroded high-margin upper class segment of the Indian Railways (IR) two years in a row causing it to lose over 10% in revenues and analysts predict this trend to continue. However, IR is undeterred by the loss of revenue from the most profitable segment confident of gaining the lost market share without stating how they plan to achieve this feat. Higher classes are blocked en masse for politicians, senior bureaucrats, and railway employees and released much later in the reservation cycle. Moreover, plum seats are given to non-paying Railway employees and passengers paying full fare and given the worst seats. Moreover, the upper class coaches are always in the most inconvenient locations making those who paid the most money walk the most. These socialism inspired processes encourage many to seek alternate modes of transportation.

The IR has been forming very well for the last 3 years thanks to deregulation of the freight handling, processing, and handling which is the second most profitable segment. Operational ratios have been consistently improving year on year, revenues have grown, and so has reserves. It earned a profit of USD 2.9 billion last year and plans to earn USD 4.5 billion this year.

The IR plans to build a new corridor dedicated for freight. Laying the foundation stone for the first phase, Federal Minister for IR said that the Government will build a separate freight corridor to link Punjab’s industrial hub Ludhiana to major ports such as Mumbai and Kolkata. He said because of increased profits, the IR will not increase the fares to increase profits. He did not say how he will cover the global increase in the price of oil and maintain his profit projection.

Private container operators are also demanding that they be given permission to operate, manage, and maintain wagons owned by them. They experience large delays from service bookings with the IR which increases their operating cost and reduces their margin. It looks like IR may actually allow such deregulation. However, it would be wise to set up a strict quality and penalty regime so ill-maintained wagons do not cause trains to derail, cause damage to tracks, or increase the drag on engines to reduce their life-span. The last thing India needs is the quality of wagons similar to the trucks on the roads.

Meanwhile, a delegation if senior academicians from premier educational establishment Indian Institute of Management at Ahmedabad met with Yadav and proposed that he appoint an advisory committee of senior academicians from IIM and Indian Institute of Technologies. Prof. G. Raghuram is part of an official committee that predicted that the IR will incur losses of USD 13.483 and slip into bankruptcy in 10 years. Yadav declined the proposal and said that the IR has enough experts and can manage things on their own.

The IR has seen vast investments from India and has earned profits for the first year. To sustain profits and keep growing, it needs large investments to modernize the fleet, upgrade tracks, improve signaling, increase capacity, overhaul infrastructure. It is not clear how Yadav plans to do all these things without increased investments and a plan.