Social Service Obligation of Indian Railways

posted in: Finance, General | 0

Indian Railways (IR), carries out certain transport activities which are essentially uneconomic in nature in the larger interest of the economically disadvantaged sections of the society.  Losses incurred on this account fall under Social Service Obligation of IR.

Net Social Service Obligation borne by IR in 2014-15 is assessed at Rs 25,346.94 crore excluding staff welfare cost (Rs 4,797.50 crore) and law and order cost (Rs 3,415.43 crore).  These costs impinge upon the viability of Indian Railways system.

Elements of Social Service Obligation: 

The main elements of Social Service Obligation in IR are losses relating to:

  • Essential Commodities carried below cost;
  • Passenger and Other Coaching services;
  • Operation of Uneconomic Branch Lines;
  • New Lines opened for Traffic during the last 15 years.

Losses on transportation of Essential Commodities carried below cost:

As part of the Railways’ Social Service Obligation, certain essential commodities of mass consumption like fruits and vegetables, sugarcane, paper, charcoal, bamboos, cotton raw pressed etc. are carried below cost of operation in order to contain their market prices. The total losses on the movement of these commodities in 2014-15 amounted to Rs 68.92 crore.

These commodities constituted 0.71% of the total revenue NTKMs and 0.31 % of freight earnings in the year 2014-15.

Losses on Passenger and Other Coaching services:

Analysis of the profitability of Coaching Services in 2014-15 has revealed an overall loss of Rs 33,490.95 crore to which net suburban losses in Chennai, Kolkata, Mumbai and Secunderabad provided with EMU and Non-EMU services contributed Rs 4,755.62 crore. While the lag in the rise of passenger fares with respect to inflationary pressures prevalent in the economy has contributed to coaching losses, other factors have also exacerbated the situation which include

Low Second Class Ordinary Fares in both suburban & non suburban

Passenger Services: These journeys constitute 79.5% of total traffic but provide only 17.9% of total passenger earnings.

(ii)        Non-Suburban commuters availing Season Ticket concessions up to a distance of 150 kilometres. These journeys constituted 21.7% of Non-Suburban Traffic but provide 1.2% of Non-Suburban passenger earnings only.

(iii)       Commuters availing concession Monthly and Quarterly Season Tickets on Suburban Sections of Chennai, Kolkata, Mumbai and Secunderabad. Journeys performed by passengers holding season tickets formed 60.7% of Suburban Traffic but provide 41.3% of Suburban passenger earnings only.

(iv)       Concessions in Fare extended to various categories  such as (i) Senior citizens (ii) Recipients of gallantry awards (iii) National sports awards (iv) Participants in National and State sports tournaments (v) Teachers honored with National awards (vi) Shram awardees (vii) War widows (viii) Patients suffering from cancer, tuberculosis and other serious diseases (ix) Handicapped persons (x) Press correspondents (xi) Film technicians etc.

(v)        Concessions are also extended to (i) Military traffic (ii) Postal traffic (iii)       Transportation of registered newspapers & magazines etc. and (iv) Traffic to the North East. IR also steps in to provide emergency relief by transporting materials like food, water, fodder etc. to areas affected by natural disasters like drought, cyclone, earthquake etc.

Compensation for Social Service Obligations in Other Countries:

Railways, the world over, are called upon to meet certain public service obligations at lower tariffs for which they are adequately compensated for by the Government. Such support is provided in various forms and for different purposes like:

(i)         Compensation for losses on account of concessional tariffs;

(ii)        Out-right grant to cover deficits;

(iii)       Soft loans to meet the deficits;

(iv)       Financial support to maintain viability of the system and to earn marginal profits;

(v)        Writing off of accumulated debts and unproductive capital; and

(vi)       Support for investment and infrastructure maintenance.

Indian Railways incur losses every year by performing a variety of  unremunerative services. These losses are mostly due to (a) Low ordinary second class fare (b) Suburban and non-suburban season fare (c) A variety of concessions granted on passenger ticket and (d) Transportation of certain commodities below cost. Working of uneconomic branch lines, too, imposes a heavy burden on IR’s finances. A gap is thus created between the revenue income generated through these services and their running costs.

The Net Social Service Obligation borne by IR in 2014-15 assessed at Rs 25346.94 crore, constitutes 16.1% of the total revenue earnings and 17.7% of the total working expenditure.

Uneconomic Branch Lines:

Despite concerted efforts to enhance earnings on branch lines, most of such lines remain commercially unviable.  The Railway Reforms Committee recommended closure of 40 such lines but due to stiff public resistance and opposition of State Governments towards withdrawal of such services, only  15 lines have been closed permanently by the Railways.  A review of the financial results of existing 96 uneconomic branch lines for the year 2014-15 shows that, on an original investment on these lines of the order of Rs 3,741 crore, loss during the year 2014-15 amounted to Rs 2,056 crore.

New lines opened for traffic during the last 15 years: 

The Railway Convention Committee (RCC) in its 9th Report on this subject has noted that in the present state of Railway finances and prevalent high costs of construction, the Railways are not in a position to inject adequate capital investment in under-developed areas. Therefore, they have felt that reliefs like making available land free of cost and waiver of dividend payment on such lines for a minimum period of twenty years are justified.  Periodic reviews have revealed that of the 17 lines examined in 2014-15, as part  of  Social Service Obligations of the Railways for development of backward areas, all lines are showing either negative or unremunerative returns.



Leave a Reply