Details about the Financial Health of Indian Railways and One Nation One Election

Financial Health of Indian Railways

Why in news?

Despite a substantial increase in capital expenditure (capex) by the Indian Railways (IR) since the integration of its rail budget with the main budget, the operating ratio, indicating expenses relative to revenue, has not demonstrated improvement.

Areas of Concern with Indian Railways

• Debt Trap Concerns:
  • The Indian Railways (IR) is facing a growing concern related to rising debt. In the absence of surplus funds, the IR has been relying on increased funding through Gross budgetary Support and Extra Budgetary Resource.
    • However, this reliance on EBR comes with a significant cost. The IR’s spending on repayment of principal and interest make 17% of revenue receipts, a sharp rise from less than 10% till 2015-16.
• Concerns Related to Economic Growth vis-a-vis Unproductive Investments:
  • Despite the mounting debt, the significant increase in capex is underpinned by the belief that investments in the railway sector have a positive ripple effect on manufacturing, services, government tax revenue, and employment opportunities.
    • However, it is imperative that the IR, as a vital organization, avoids following the path of financial instability seen in entities like Air India.
• The Lessening Share:
  • The Indian Railways (IR) faces a significant challenge with its share in transporting key commodities declining over the years.
    • For instance, in 2011, coal transportation was 602 million tonnes (MT), with the rail share at 70%, but by 2020, coal consumption increased to 978 MT, while the rail share decreased to 60%.
    • Similarly, the share of Exim (Export-Import) containers moving to and from ports has fluctuated between 10% and 18% since 2009-10, with the 2021-22 figure at 13%.
• Concerns with Net Tonne Kilometres (NTKM):
  • There was an unprecedented decline in NTKM in 2015-16 and 2016-17 by 4% and 5% respectively.
    • In the seven-year period ending in 2021-22, NTKM showed an annual growth rate of 3.5%, significantly lower than the growth rate in road transport.

What are the Long-Term Issues in the Indian Railway System?

• Challenges in Financial Performance:
  • The IR faces a significant problem with its financial performance, particularly the stark contrast between its profitable freight segment and the loss-making passenger segment.
    • A 2023 report from the Comptroller and Auditor General of India (CAG) highlighted a massive loss of Rs. 68,269 crore in passenger services which had to be covered by profits from freight traffic.
• Challenges in Freight Business:
  • From April to July 2023, the annual growth in freight volume and revenue stands at just 1% and 3%, respectively, whereas the Indian economy is growing at 7%.
    • The modal share of the IR in India’s freight business has drastically decreased to approximately 27%, a significant decline from the over 80% share it had at the time of India’s independence.
• Artificial Division of Cargo:
  • The artificial division of cargo into goods and parcels is hindering efficiency. These divisions, driven by tariff rules, handling procedures, and monitoring practices, do not align with the concerns of shippers.
    • It is essential for the IR to abandon this artificial divide and categorize cargo based on its characteristics as either bulk or non-bulk, which could be referred to as value-added.
• Challenges in Competing with Road Transport:
  • The Indian Railways also faces competition from road transport, which has been growing at a faster rate than rail transport. This competition, combined with the fluctuating Net Tonne Kilometres (NTKM), has made it challenging for the IR to maintain and expand its share in freight transportation, where overhaul in railway transportation is required.
• Inadequacy of Containerization:
  • After 15 years of privatization, containerized domestic cargo accounts for only 1% of IR’s loading and 0.3% of the country’s total freight.
    • High haulage rates and the risk of market development with potential losses are contributing to this underperformance.

What are the Ways to Ease and Improve the Transport of Cargo by Indian Railways?

• Need to Phase Out Parcel Trains:
  • The IR is facing challenges in moving general cargo using parcel trains and special heavy parcel van (VPH) trains.
    • One of the key reasons for these challenges is the high tariff, which is often higher than truck rates.
  • The VPH parcel trains are found to be counterproductive, and there is a better alternative in the form of covered wagons that can carry more cargo efficiently.
• Need of Flexibility for Shippers:
  • A significant issue for the IR is that shippers can only send a few tonnes under parcel tariff or thousands of tonnes under freight tariff, making it unsuitable for the needs of general cargo.
    • Shippers require a more flexible and suitable option that aligns with their cargo sizes, akin to asking passengers to come with a load of passengers before booking a berth on a passenger train.
• Overcoming Challenges in Cargo Transportation:
  • The declining share of the IR in bulk cargo is partly due to the high cost and capital-intensive nature of railway sidings, which discourages smaller industries from using them.
    • To address this, common-user facilities at cargo aggregation and dispersal points are needed, especially in mining clusters, industrial areas, and large cities.
• Ensuring a Level Playing Field Between Rail and Road Transportation:
  • Environmental clearance for rail loading/unloading facilities has been made mandatory but the same has not been imposed on road loading/unloading facilities. There is a need for consistent Environmental regulations.
• Optimization of Tariffs:
  • To incentivize volumetric loading, tariff structures can be adjusted based on the quantity loaded. The IR should also encourage cargo aggregators and optimize payload and speed for better efficiency in the long run.
• Modernization of Infrastructure:
  • Urgent need for infrastructure modernization in railways, including high-speed rail, station redevelopment, track doubling, coach refurbishing, GPS tracking, and digitalization for safety, efficiency, and cost reduction.
• Reduction in operational costs:
  • Indian Railways has achieved an Operating Ratio of 98.14% which can be further improved by focusing on energy conservation, optimizing manpower, and enhancing procurement practices.

What are the Different Initiatives of Railways for Increasing Bulk Cargo?

There is an immediate need to develop common-user facilities at cargo aggregation and dispersal points in mining clusters, industrial clusters and large cities. As the knowledge of these clusters rests with the States, collaboration with the State governments is of utmost importance

• The Indian Railways (IR) has undertaken several initiatives in the bulk cargo sector, including relaxing block rake movement rules, allowing mini rakes, and introducing private freight terminals (PFTs).
• The Gati Shakti Terminal (GCT) policy simplifies the operation of these terminals, and private sidings are being converted into GCTs.
• Government of India has introduced two key policies: The PM Gati-Shakti Policy aimed at creating a seamless multi-modal transport network, and the National Logistic Policy, focusing on building a national logistics portal and integrating platforms across various ministries
• Dedicated Freight Corridors: The government has also introduced schemes such as ‘Dedicated Freight Corridor’ which should be leveraged to increase freight transportation.
• Sagarmala and Bharatmala Projects

One Nation One Election

Why in news?

The concept of conducting Simultaneous Elections/One Nation One Election (ONOE) for both the Lok Sabha (Parliament) and state Assemblies in India has been under discussion, despite logistical and other challenges

A committee, chaired by former President Ram Nath Kovind, has been established by the Central government to examine the viability of the ‘one nation, one election’ (ONOE) proposal.

Background:

• Simultaneous elections were held in the country during the first two decades after Independence up to 1967. The dissolution of certain Assemblies in 1968 and 1969 followed by the dissolution of the Lok Sabha led to the disruption of the conduct of simultaneous elections.
• Currently, only a few states (Andhra Pradesh, Arunachal Pradesh, Odisha, and Sikkim)hold elections along with the Lok Sabha polls.

Advantages:

According to the draft report on simultaneous elections by the Law Commission of India (LCI) in August 2018, ONOE will lead to the saving of public money, reducing the strain on the administrative setup and security forces, timely implementation of government policies, and administrative focus on development activities rather than electioneering.

Challenges:

• Feasibility:
  • Article 83(2) and Article 172 of the Indian Constitution stipulate that the tenure of Lok Sabha and State Assemblies respectively, will last for five years unless dissolved earlier and there can be circumstances, as in Article 356, wherein assemblies can be dissolved earlier. Therefore, the ONOE plan raises serious issues of feasibility if the Central or State government collapses mid-tenure.
  • Amending the Constitution for such a significant change would not only necessitate extensive consideration of various situations and provisions but would also set a concerning precedent for more constitutional amendments.
    • The Election Commission of India submitted a feasibility report to the government in 2015, suggesting amendments to the Constitution and the Representation of the People Act, 1951.
• Not Aligned with Federalism:
  • The idea of ONOE does not square with the concept of ‘federalism’ as it is established on the notion that the entire nation is “one” contradicting the content of Article 1 which envisages India as a “Union of States”.
• Present Form is More Beneficial:
  • The present form of recurrent elections can be seen as beneficial in a democracy as it allows voters to have their voices heard more frequently.
  • As the underlying issues of national and State polls are different, the present framework prevents the blending of issues, ensuring greater accountability.
  • Approximately 30 lakh EVMs and VVPAT machines would be needed for simultaneous elections.
• Cost Considerations:
  • The ECI has highlighted that simultaneous elections would require a substantial budget.
  • A total of approximately Rs 9,284.15 crore would be needed for procuring EVMs and VVPATs, with additional costs for replacing machines every 15 years.
  • Simultaneous elections would increase warehousing costs due to the storage of machines between elections.
• Impact on Voter Behaviour:
  • Some political parties argue that it may influence voter behaviour in a manner that voters would end up voting on national issues even for State elections and this may lead to larger national parties winning both State and Lok Sabha elections thereby marginalizing regional parties.
• Election Issues:
  • State and national elections are often fought on different sets of issues — and in simultaneous elections, voters may end up privileging one set over the other in ways they might not have done otherwise.
• Diminished Accountability:
  • Having to face the electorate more than once every 5 years enhances the accountability of politicians and keeps them on their toes. Finally, a lot of jobs are also created during the elections, which boosts the economy at the grassroots levels

Way Forward

• Recommendation of Parliamentary Standing Committee on Law and Justice: A two-phase election schedule, according to which elections to some legislative assemblies whose term end within six months to one year before or after the election date could be held during the midterm of Lok Sabha. For the rest of the states, elections could be held along with the general elections to Lok Sabha.
• Cost can be brought under control by ensuring that the legal cap on the expenditure of candidates is followed by all parties.
• Concept of One year, One election will be easier than ONOE, and will have the same benefits.

International Examples:

Simultaneous Elections are successfully held in South Africa (national and provincial), and Sweden (including local elections as well on the same day).