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News Entry# 289134
  
Dec 20 2016 (03:24)  COMMENT: Finally, Railways get their booster engine (m.moneycontrol.com)
News Entry# 289134     
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Posted by: Jayashree ❖ Amita*^  36145 news posts
It has now become a routine that after every rail accident we see politicians lining up to be seen at the crash site for the customary photo-op, while a committee is set up to look into the causes. Rarely is any action taken on the findings of the committee reports which keep piling up. Nearly eight safety committees have been formed since 1954 but most of the suggestions have not been implemented.
The main reason for non-implementation is a lack of money with the Indian Railways. This problem is not new but has been passed on for decades. Lacking political will to take steps that are necessary for a safe railway, governments have delayed taking the most obvious steps. Ministers have shied
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away from increasing passenger tariff rates, while compensating the shortfall by increasing freight rates.
The end result is, today India has the cheapest passenger fare and the costliest freight, according to AK Mittal, Chairman of Railway Board. This is the biggest factor increasing inefficiencies, distortion and performance of railways, according to Mittal.
Freight accounts for over two-thirds of railway collections, which should ideally be 50 percent. According to a World Bank analysis done in 2012, productivity of Indian Railways is well below world standards. China makes three times more money per passenger while its freight rates are half of India’s, after adjusting for purchasing parity.
A faulty pricing policy has resulted in a gross neglect of railway infrastructure. Around 3,000 railway bridges are over 100 years old, out of which 32 have been classified as distressed bridges. Over 40 percent of railway sections are running at more than 100 per cent capacity. The average speed of Indian passenger rail is 36 km per hour while for freight trains it is even slower at 26 km per hour, much slower than road travel.
High freight cost and slower speed has resulted in railways losing market share to roadways. From a market share of freight traffic of 89 per cent, the railways now command less than 30 per cent. It has lost market in most of the commodities apart from coal. In some cases like automobile transportation, it now has a paltry 3 per cent market share. In the case of petroleum and petroleum products too, railways now have only 33 per cent market share.
Given that both passenger and freight are price-sensitive, the railway ministry’s proposal of setting up an independent agency to look after fares could be a game-changer for railways. This is the second big announcement made by railway minister Suresh Prabhu after he announced that rail budgets will be merged with the finance budget.
Merging of the budget would mean that railways do not pay a dividend to the government while at the same time use the union government’s balance sheet to raise funds.
Railways posted losses of Rs 33,490 crore a year in 2015, almost all of it from the passenger division. Keeping tariffs low is depriving the railways of the opportunity of generating enough reserves to replace depreciated assets. According to reports, railways need around Rs 25,000 crore every year to replace old assets. In the current year’s railway budget, the railway ministry could only spare Rs 3,200 crore.
The obvious and straightforward solution to the perpetual problem is increasing passenger fares. But this is considered to be politically suicidal. Further, rates need to be periodically increased if need be at the same time freight rates are realigned to attract traffic. The first phase of the dedicated freight corridor is expected to be commissioned by December 2017 but this would need attractive rates to woo back traffic. A step in the right direction has been taken by Prabhu in taking freight rates out of the politician’s purview.
Fears of rates going through the roof are unfounded as airline rates have now come down which would keep a ceiling to how much rates can be increased. Further, railways will have the flexibility of charging rates depending upon the season and demand. Its recent experiment with surge pricing has shown that passengers are willing to pay a higher price for a confirmed seat. But the drop in second tier AC passengers showed that pricing has to keep in mind other modes of transport.
With the two measures announced by railways, the sector is in for an exciting time as the government, flush with funds thanks to demonetisation, will find an outlet in railways which is starving for money to implement its various projects. Having an independent authority will keep the momentum going and make the process irreversible.
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