The Indian Railways and Covid – Part II

It is the largest employer in India and eighth largest in the world. It is also the fourth longest railway network in the world sprawling out to a total length of 70,000 kms. It runs 21,000 trains and carries 23 million passengers and 3 million tonnes of freight per day. What was the multi-faceted impact of the Covid pandemic on such a behemoth? In this series of articles Covid Response watch looks at how the Indian Railways dealt with the Covid pandemic and what it meant for its own future, its employees and passengers.

Part Two: Pandemic spurs privatization plans of Indian Railways          

The debilitating impact of a major natural disaster like the Covid-19 pandemic on a massive business empire like the Indian Railways can only be multi-dimensional and multi-layered. Of these, the impact on the railway finances would be fundamental. The Indian Railways had to suspend the running of all passenger trains for a couple of months in March 2020, and hence the financial losses could only be substantial.

More than passenger fare income, the revenues of Indian Railways primarily depend on freight services. The Railways might have operated the freight trains without a break. But the total lockdown declared by the Government of India and the various state-level lockdown extensions and other restrictive measures on activities to curtail the spread of the virus crippled the economy. Manufacturing activity almost came to a halt, except in the case of manufacture of essential items and their distribution. Numerous industries remained closed for long. Naturally, this would reflect in lower freight earnings as well. The two fiscal years 2020–21 and 2021–22 were financially the most debilitating years for the Indian Railways.

However, making use of the pandemic as an opportunity, the Railways pushed through many unpopular policies and carried out major restructuring in its operations. Foremost among them was speeding up the overall strategy of railway privatization, which is the declared strategy of the Centre for the railways.

Financial losses due to the pandemic

First, let us take a look at data from the rail budgets, comparing the largely pre-pandemic year 2019–20 with the subsequent pandemic years.

Table 1. Revenue Collection for Indian Railway (Rs. Crore)

Source: Different Union Budgets.

In the peak pandemic year of 2020–21, the revenues from passenger fares nosedived sharply to the tune of Rs. 35,420.60 crores (See the Table above). Even after the passenger trains started running from the middle of 2020 itself, the collection reduction in the form of passenger fares in the rail budget of 2021–22 was Rs. 16,625 crores compared to the budget estimate. This is because, thanks to the pandemic, even after trains started running, passenger traffic was less. 2021–22, of course, witnessed the Covid second wave. Tourism and travel remained very much depressed. Economic recovery was still feeble. This means the passenger traffic had not yet reached the pre-pandemic level by January 2022.

The freight traffic in contrast showed a different picture. Even in the peak pandemic year, as the freight trains were running without any break, the receipts from freight increased marginally in 2020–21 (see Table 1). The second wave depressed the economy. Still, in 2021–22, the freight collection increased in the revised estimate by Rs.7465 crore over the budget estimate. This showed impressive freight earnings from the economic recovery after a backlog. The budget estimate target for 2022–23 is a handsome Rs. 20,000 crores higher compared to 2021–22. This shows almost total recovery in the revenues for Indian Railways.

The loss doesn’t justify fare hike or an all-out privatization

If we adjust the increase of Rs.7465 crore in freight collection above the targeted level in 2021–22 with the shortfall in collection from passenger fare of Rs.35420.60 crore in 2020–21, the total reduction in revenues to the Railways works out to Rs. 27,955.60 crores only. To bridge this revenue shortfall, an amount of Rs.29925.69 crore was given from the Union Budget to the Indian Railways in 2020–21. Besides this, a special loan of Rs. 79,398.00 crores was extended from the Union Budget as a repayable credit to meet the huge pension liabilities in the pandemic year. The loan was also meant to bridge the resource gap caused by the pandemic and sustain the level of investment and expansion activity by the railways in 2020–21. With growing revenues, Indian Railways could easily repay this loan over the next few years.

By increasing all passenger fares by a flat 30%, Indian Railways earned Rs.8174 crore only. Given the scale of railway finances, bridging this level of shortfall through ticket rates hike could well have been avoided and this shortage could have been spread over a few years. In other words,

the impact of the pandemic on railway finances was not so severe that it could justify an out-of-turn sharp fare hike and an all-out push for privatization.

In fact, not all the blame can be laid on the pandemic. The Modi government was manipulating figures to show a rosy picture of the railway finances earlier too. The financial health of railways is reflected by an indicator called Operating Ratio, which is the balance between receipts and expenditure (i.e., the ratio of the amount spent for every Rs.100 of receipt). The railway budget showed that the Operating Ratio for 2019–20 was 98.38%. But a CAG report exposed this and showed that if the expenditure on pension payment was also taken into account the ratio would have been 114.35% (i.e., Railways spent Rs.114.35 for every Rs.100 it earned). This means railway finances were not healthy even before the impact of the pandemic peaked in March 2020. The pandemic only worsened it.

Capital investments for new projects take a hit

Railways made a few startling announcements in 2020 and 2021. The largest ongoing big-ticket project of Indian Railways is the Rs. 81,000 Dedicated Freight Corridor project, which had been targeted for completion by December 2021. The Railways failed to complete that and postponed the deadline to June 2022, but some railway employees told Covid Response Watch that it is unlikely to be completed by June this year. The main reason is the disruption caused by the pandemic but the financial stress is also a factor.

A bullet for the Bullet Train!

But the financial stress has not prompted Modi to scrap his controversial bullet train project for a super high-speed train between Ahmedabad and Mumbai. The original official cost of the project was stated as Rs.1,08,000 crore. But the Expenditure Profile document of the Union Budget 2022–23 shows[i] that the Japanese International Cooperation Agency from which Indian Railways is supposed borrow money for the bullet train would give a loan of only 239,547 million yen that equals Rs. 15,947.99 crores only in two stages.

How will the Indian Railways cough up rest of the amount running to more than a lakh crore? Ignorant of the ground realities, the political leadership arm-twisted the Railway officials to speed it up for completion by 2023, in time before 2024 Lok Sabha polls, to make it a showpiece. But by 5 September 2021, only Rs. 14,153 crores could be spent and only 44% of the required land could be acquired in Maharashtra. In a personal blow to Modi, the project was officially postponed to 2026. With an opposition government critical of the project in saddle in Maharashtra, further progress in land acquisition is impossible. And the cost escalation is estimated to be around another Rs. 20,000 crores at a minimum.

With land acquisition hassles and popular opposition, the Railways spending on this project is stuck. Rs. 25,000 crore constructions bid to be awarded to L&T has not been finalized yet. The performance of the BJP in UP would pose a question mark over Modi’s prospects in 2024. So, the project is as good as dead. To neutralize the opposition to this Gujarat-centered project, Modi Government announced 10 more bullet train projects for Rs. 10,000 crores in September 2021 and that became a prime example of a jumla because not even a single rupee had been allotted to these 10 bullet trains in the 2022–23 rail budget!

Pathetic Record of Privatization

Another big-ticket project was to hand over 100 profitable train routes to private bidders for Rs. 30,000 crores. Till July 2021, only two bidders came forward. One was IRCTC, an Indian Railways controlled company, whose shares were divested to make it a public limited company. The other one is the Hyderabad-based Megha Engineering and Infrastructure Limited. The late Jaipal Reddy went to press accusing the latter of being a crony capitalist outfit that was given Rs. 60,000 crore dam construction contracts by Telangana CM KCR just for the sake of 30% kickback. Anyway, with poor response from private players, the Railways cancelled the original bid. Only the two Tejas Express trains running between Ahmedabad and Delhi and Delhi and Lucknow were however revived in July 2021 by IRCTC itself as showpieces but are running half empty as the ticket cost matches air fares.

Disinvestment was another route for privatization. The Centre arm-twisted LIC and PSUs to buy shares of Container Corporation of India (CONCOR) and Indian Railway Catering and Tourism Corporation (IRCTC) to make their disinvestment stories look like a grand success. The middle-class investors were duped. After a long spell of speculative surge in the stock markets, when they entered a period of turbulence in 2022, both the artificially sustained stocks were falling.

On the day of this writing, the IRCTC shares witnessed an intra-day fall of 8% on 6 February 2022 after experiencing a free fall of 30% over two days in October 2021. Though less volatile, CONCOR shares too have been steadily falling and are being propped up on by further installments of disinvestment. Clearly, there are limits to market manipulation by the government to show a disinvestment success story in Indian Railways.

Yet, privatization vastly expanded

A labour leader in the Railways told Covid Response Watch, “Not a single private company is coming forward to run private trains and the fact that only 2 “private trains” could be run only on two lucrative routes—and that too by a partially privatized subsidiary of the Indian Railways itself—should not create any complacency among the workers. On 23 August 2021, quoting from Finance Minister’s Railways component of National Monetisation Plan, Business Standard revealed that the government had planned to sell 400 railway stations, 90 passenger trains, 1 route of 1,400 km railway track, 741 km of Konkan Railway, 15 railway stadiums and selected railway colonies, 265 railway owned good-sheds, and four hill railways of Indian Railways to raise funds for the government to the tune of 1.52 lakh crore.”.

By coincidence, a news item that Gautam Adani has merged all the railway-related operations of the Adani Group to float a company called Adani Railways and would buy up Railways stakes, which appeared at that juncture, caused a major outrage among rail workers and in opposition circles that the government was planning an outright sale of Indian Railways. The Railway Minister himself had to clarify in public that the Indian Railways was not for sale to Adanis. But he did not specifically deny the Business Standard report. The great Indian Railways has now arrived at the crossroads. It is facing an existential threat.

The reality also shows that things are moving towards all-out privatization. While loco engines can be manufactured by Indian Railway’s own plant in Chittaranjan, they are being purchased from Alstom, the French multinational, which is totally at odds with Modi’s own Make-in-India policy. In his 15 August 2021 speech, Modi promised 75 high-speed Vande Bharat trains by 2023 end, in time for 2024 elections. But, thanks to financial constrarints, the policy faces practical hurdles. The Railways have issued tenders only for 58 such trains to be supplied by private multinationals like Alstom and by 2022 July there would be a trial run by only one such train and, in the existing condition of track modernization, running 58 such trains is virtually impossible says a railway official in Prayagraj. He further pointed out that in the latest rail budget, only Rs.51 crore had been allocated for railway research! The National High-Speed Rail Corporation that is supposed to execute this project of 58 high-speed trains by 2023 has been allocated only Rs.5000 crore[ii]. There is no need to comment more.

Despite the existence of IRCON, the Railways’ own construction company, construction contracts are being awarded to companies like L&T. Ticket booking, catering and tourism services have been handed over to IRCTC. Maintenance of railway stations and trains, laying of tracks and cleaning work…all are being privatized.

But the most dangerous privatization move is to bring down the government’s stake in Indian Railways Finance Corporation Limited (IRFCL), a financial holding company of sorts that owns a lion’s share of railway property. Already, by March 2021, the government’s holding in IRFCL has come down to 86.36% in IRFCL.

IRFCL is entrusted with financing the Indian Railways by borrowing funds commercially from financial institutions as well as private financial markets. Through a complex arrangement, it even buys the rolling stock from private players and leases them to the Indian Railways on a long-term 30-year basis in terms so complex that any operational loss would not fully reflect in Indian Railway’ books. If 49% of stakes in IRFCL pass into private corporate hands, the railway bureaucracy’s own hold on railway policies and decisions would be weakened and the corporates would start dictating terms.

Already Mukesh Ambani has started selling diesel to Indian Railways and Adanis have made a beginning by selling 50 MW power at a high cost of Rs.3.60 per unit whereas solar power is available in the Indian market at nearly half that rate!

Apart from Covid, the viruses of private corporations and corruption too seem to have struck the great Indian Railways.

B.Sivaraman is a researcher based in Allahabad, Uttar Pradesh

[i] In Statement 19 on Externally Aided Projects under the Central Plan under items 27 and 28

[ii] See Statement 25 on page 266 of the Expenditure Profile document of Union Budget 2022–23!