A simian and his gravy trains

With the exception of pork, delivering everything else using the railways has become more expensive

‘‘Railways used to carry 90 per cent of the freight traffic in 1950-51, which has successively been coming down. It came down to 70 per cent in 1970, 45 per cent in 1990, and now it is at an all time low of 30 per cent,’’ the official said. The decline in freight traffic has a direct impact on railway finances. Railways earn 70 per cent of their money from carrying freight, and only the remaining 30 per cent comes from passenger fares. [IE]

If the Indian Railways were run with even a semblence of commercial sense, it would be quite apparent that losing market share in the largest revenue earning product is not a particularly desirable outcome. But Laloo Prasad Yadav, India’s champion of the downtrodden, has done exactly that — freight charges have just gone up again. To be fair, he is not first one to put politics before economics, but, as we are constantly reminded, this is a government led by an economist with reformist credentials.

What’s more, the move is actually contrary to the UPA government’s declared objectives of raising rural employment and supporting small businesses. These are exactly the type of people who would benefit from an ability to ship goods efficiently within India; increasing charges for rail freight increases their business costs.

There is of course the option for the small-scale industrialist to employ dispatch riders who could buy cheap passenger tickets and hand deliver merchandise to customers. Not exactly the most efficient way, but hey, another way to generate employment.

Update:Financial Express editorial

If the railways considers that its policy of cross-subsidising passenger tariffs with freight tariffs is paying off, consider this: figures show that in 2003-04, revenues from second class traffic (not upper class, which is often used to compare air fares) had fallen short by Rs 250 crore as against what was budgeted. This clearly shows that people have already started switching their mode of transport away from the railways. Therefore, from a purely economic point of view, the impact of the current hike would have been greatly reduced if the hike was spread to both passenger and freight. But for the fleeting ray of hope shown by Nitish Kumar, clearly the railways is fighting a losing battle and its present operating ratios do not lend any scope for greatly improving the existing infrastructure (signalling, coaches et al) that increase freight and passenger volumes.

Consider some more facts on railways. At present, freight revenues form 64% of gross traffic receipts. But if the railways continues to tax freight to recover costs and subsidise passenger tariffs, this share is bound to come down. The rail minister should remember that some of their “bread and butter” sources of revenue, such as coal, are not going to remain price inelastic forever. Numbers taken from this year’s rail budget, for instance, already indicate a rather disturbing trend: between 2003-04 and 2002-03, actual earnings from even coal traffic had declined by 1.8%! As the efficiency of road transport increases, once the golden quadrilateral is in place, the current policy would result in the railways themselves killing the goose that lays the golden eggs. [FE]