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BW Businessworld

Missing Passengers

Railway minister Suresh Prabhu must be a worried man. The passenger traffic is shrinking, and so are the chances of meeting the revenue targets for the fisc. Between April and September of the current financial year, Indian Railways saw a shortfall of 142 million passengers compared to the corresponding period last year. In percentage terms, it amounted to a 5 per cent drop in passenger traffic and nearly 7 per cent fall in passenger revenue, compared to the Budget targets. In real terms, passenger earnings in the six-month period stood at Rs 23,108.38 crore as against the Budget target of Rs 24,814.48 crore. The cumulative passenger traffic for the same period stood at 4,110 million against projections of 4,327 million.

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Railway minister Suresh Prabhu must be a worried man. The passenger traffic is shrinking, and so are the chances of meeting the revenue targets for the fisc. Between April and September of the current financial year, Indian Railways saw a shortfall of 142 million passengers compared to the corresponding period last year. In percentage terms, it amounted to a 5 per cent drop in passenger traffic and nearly 7 per cent fall in passenger revenue, compared to the Budget targets. In real terms, passenger earnings in the six-month period stood at Rs 23,108.38 crore as against the Budget target of Rs 24,814.48 crore. The cumulative passenger traffic for the same period stood at 4,110 million against projections of 4,327 million.

Passenger earnings, which are typically around 30 per cent of the overall railway revenues, are extremely crucial for railway finances. Monthly performance analysis of Indian Railways shows the shortfall in passenger traffic was highest in the first quarter of 2015 at 190 million. By August-end, the drop in traffic stood at 150 million which reduced to 142 million at the end of September. While the tapering data indicates that the Indian Railways has managed to arrest the slide, the truth of the matter is railways is no longer the favourite and dependable means of transportation for over 14 crore patrons. It is slow, crowded, unreliable, unsafe and expensive compared to some alternative services.

Railway ministry insiders concede that by the time the current financial year ends on 31 March 2016, Indian Railways may see a 3.5-4.5 per cent drop in passenger traffic compared to FY14-15. Based on current trends, it could witness a decline of 288 million to 370 million passengers in FY15-16 unless the situation improves in the October-December quarter. Officials are hoping to make up for the shortfall during the holiday season (October to December) by deploying extra trains, which they believe will fetch more passengers and better revenue collections.

Villain Of The Piece
Experts say the bulk of declining passenger traffic is coming from suburban trains. Of the 142 million shortfall in passenger traffic in the first six months of this fiscal, the suburban railways logged a deficit of around 10 million. That said, it’s not just the suburban routes but even the long-journey passenger category is witnessing a slide with more people opting for alternative transportation services that save time.

While railway officials across zones are trying to ascertain the reasons why millions of passengers are shunning Indian Railways, experts see a correlation between past fare hikes and the decline in passengers. “Passenger fares were hiked in June 2014 and before that in January 2013. In June 2012, service tax was levied on railway passenger fares. The decline in passenger numbers seems to indicate that there is a correlation between fare and passenger numbers,” says Rajaji Meshram, director, Infrastructure and Government Services, KPMG India.

Agrees Nripesh Kumar, director, Capital Project & Infrastructure, PwC India. “A more significant impact of increase has been on the short-lead passenger segment (50km or less), which seems to account for most of this decline in passenger traffic,” says Kumar.

So what’s Railways doing to arrest the decline? Says Manoj Sinha, minister of state for railways: “Yes, there is a shortfall and we have taken steps to tackle it. On the revenue front, we are on course. I am confident about catching up by March-end. Ticket checking mechanism is being strengthened and more measures taken to tackle the situation.” Railway Board chairman A.K. Mittal declined to comment when contacted by BW | Businessworld.

The Suburban Burden
In the six months to September, the total suburban passengers booked on originating basis stood at 2.2 billion, accounting for around 53 per cent of the total 4.1 billion passengers booked during the period. However, in terms of earnings, suburban contributed only around Rs 1,315 crore between 1 April and 30 September 2015. This means the contribution of suburban traffic was only 5.7 per cent of the total passenger earnings of around Rs 23,108 crore. “It is clear that more than 50 per cent of the passengers carried by Indian Railways (in suburban services) are contributing to losses. Suburban systems under Indian Railways need to get contribution from respective state governments; the losses on account of suburban services should not be shouldered by Indian Railways alone, as is the case currently,” says Meshram.

According to him, the railways needs to effect a fundamental structural change by hiving off the various suburban services into separate special purpose vehicles, where state governments own a share. “The railways needs to focus on intercity passenger traffic which is its core responsibility, and in the light of the ‘Smart Cities’ initiative, the segment is only going to increase,” he says.

But first, Indian Railways has to acknowledge that it faces too many problems. Officials in both Rail Bhawan and some of the zonal headquarters concede that there is a sense of denial amongst top bosses. “We have heard seniors say this is just a phase, it will pass. Passenger volumes during October-December period will make up for any shortfall, they say,” says a senior officer in the traffic department on the condition of anonymity. Another officer says, “Most of the shortfall is in the suburban services in cities such as Mumbai, Hyderabad, Bangalore, Chennai, Nagpur, etc., where alternatives such as cab services and shared taxis at affordable rates have emerged and where the suburban services are crowded, unreliable or simply the last choice.” Growth in ticketless travel and shortage of trained ticket examiners are among the long list of possible explanations offered by officials.

Railways To Blame
But experts dismiss such explanations as excuses. Says Kumar of PwC, “For long, the railways has not made significant investment in its network and services, while it should be competing with airlines to capture and cater to passenger demands. Overall customer experience, safety and reliability are critical. Creating a new customer experience in the form of a modern railway system would help railways increase its share of remunerative segment.”

The drop in passenger traffic is set to impact revenue. In the railway budget presented in February, railway minister Prabhu projected a rise of around 17 per cent in passenger traffic earnings to Rs 50,175 crore based on expectations that more people will travel longer distances using Indian Railways. However, ground realities have been vastly different, as discovered in the white paper on railways released in May. The Budget projections for 2015-16 indicated the sleeper class (mail and express) would contribute the maximum Rs 13,338.90 crore in passenger earnings — a projected growth of over 15 per cent compared to 2014-15 figures of Rs 11,247.93 crore based on the revised estimates that the overall passenger traffic for 2014-15 would be 8,350 million. But this was not the case, according to the white paper.

The revised total passenger traffic for 2014-15 stood at 8,228 million as opposed to 8,350 million. Therefore, the projected revenue would fall short of the revised estimates of Rs 43,000 crore as presented in the Budget. And if that is the case, the projections for 2015-16 based on the numbers of 2014-15 would be impacted too. As one expert says, “For 2015-16, the projections for passenger traffic is 8,600 million and the corresponding earnings target of Rs 50,000 crore looks very challenging.”

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@ashish_bw

(This story was published in BW | Businessworld Issue Dated 30-11-2015)