Indian Railways survives by ferrying coal, not passengers

30th july 2018

Indian Railways, which serves over 24 million passengers every day, has an unlikely saviour: coal.

Asia’s largest railway network charges about 31% extra to transport coal to power plants over the other items it carries. This helps it make up for the losses incurred in providing cheaper passenger services, a study by think tank Brookings India has found.

No wonder that coal accounts for some 44% of Indian Railways’ freight revenue, the study released on July 17 found. In 2017-18, this revenue stood at over Rs9,471 crore ($1.37 billion), more than double the Rs4,297 crore Indian Railways earned from passenger operations.

“Indian Railways’ business model is based on passengers underpaying and freight overpaying,” the study said.

Despite high passenger volume, India’s passenger fare-to-freight charge ratio stands at an abysmal 0.24, compared to that of countries such as Japan (1.9), Germany (1.5), and China (1.2), the report said.

With a track length of 115,000 kilometres, Indian Railways is Asia’s largest and the world’s second-largest rail network.

The reason why most of its revenue comes from freight is because hiking passenger fares has always been a politically fraught affair. Given its expansive reach, the Railways has always been viewed as the common man’s mode of transport, and electoral politics makes it difficult to tinker with ticket rates.

In 2016, the then Railways minister Suresh Prabhu introduced flexi fares in three of the premium trains, modeled on the concept of surge pricing seen in app-based cab services and the aviation sector. But the decision was slammed as being anti-people.

The renewables threat

This business model could run into trouble, though, as India’s total coal requirement is expected to reduce by 2030. Because power rates are set to fall, power-plant efficiencies are improving, and, most importantly, renewable energy is on the rise in the country, the Brookings India study says.

Better technologies mean sending power over the wire will get cheaper than relying on Railways to transport coal.

So for Railways to stay solvent, they will need to increase freight charges further, leading to a further rise in the transportation cost of coal. This, in turn, would render thermal power all the more non-competitive in the country.

Already, in financial year 2016-17, coal’s extra freight charge increased the cost of power by about 10 paise per kilowatt on average, the report said. “For power plants in distant states, which inherently rely on Railways for coal, this number can be three times higher,” it said.

Assuming that passenger fares would increase at 4.5% and the Railways would charge more on freight to recover the losses, these extra charges will increase from 10 paise per kilowatt in 2017 to roughly 18 paise per kilowatt by 2030, the report estimates.

Source: QUARTZ INDIA