Railways' Operating Ratio Remains High; Regulate, Monitor Finances, Says Parliamentary Panel

Expressing concerns that the Indian Railways continues to have a higher operating ratio, a Parliamentary Panel has recommended that the Ministry should regulate their finances and monitor it.

The financial health of the Indian Railways is determined by the operating ratio. Operating ratio indicates how much Indian Railways spends to earn Re 1. A lower figure of operating ratio is, therefore, regarded as indicative of robust financial health of the system.

The committee, headed by Bharatiya Janata Party (BJP) Member of Parliament (MP) Radha Mohan Singh, tabled its 14th report on the demand for grants for 2023-24 on Monday.

“The Committee notes that the operating ratio of Indian Railways has been persistently high. It was 97.29% in 2018-19 which noted an upward trend, 98.36%, in 2019-20. In 2020-21, though it noted a slight decline and stayed at 97.45% but soared high in 2021-22 at 107.39%, which was the highest ever in the last four years,” the report read.

Taking note that the operating ratio is a function of total working expenditure to total traffic earnings and any effort to improve the same revolves around maximizing the traffic earning and minimizing the controllable working expenses, the Committee “expressed concern over the higher value of operating ratio and recommended the Ministry to regulate their finances and monitor in such a way so that the same could result into a subservient balancing of accounts reflecting the better value of Operating Ratio.”

It also said that the Railways need to review their strategic outlook and adopt a long-term strategy to enhance the efficiency in operation and various maintenance units.

It also said that due to Covid-related resource gap, the Railways appropriated less than required amount to Pension Fund in 2019-20 and 2020-21. “With the required level of appropriation to Pension Fund from Railway Revenues in Actual 2019-20 and 2020-21, the operating ratio would be 114.19% and 131.55%,” it added.

The report also said that the Ministry has clarified that Railways’ operating ratio (OR) is calculated at the close of the year when the whole year’s financial performance is compiled. “Operating Ratio target in current year’s RE is 98.22%,” it said.

The Committee expressed happiness that the Railways have recovered from the pandemic impact in current year and are expected to stage a better performance in 2023-24.

“Even then, the operating ratio target of 98.45% in BE 2023-24 is higher than the previous year’s Operating Ratio of 98.22% (RE of 2022-23),” the report said.

When the committee enquired about the reasons and factors anticipated by the Ministry while keeping BE 2023-24 for operating ratio and the reasons for higher operating ratio in 2023-24 compared to 2022-23, the Ministry in its written reply, said: “Railways have recovered from the impact of the pandemic in the current year and are expected to stage a better performance in 2023-24. The operating ratio target of 98.45% in BE 2023-24 is marginally higher than 98.22% in RE 2022-23. It may be noted that Railways have estimated to appropriate Rs 70,516 crore from Railways revenues to pension fund as against an estimated pension expenditure of Rs 62,000 crore to build up fund balances.”

In regard to the appropriate parameter for reducing Operating Ratio indicating good health of Railway finances and the long-term measures that are being taken to decrease the operating ratio to a permissible limit, the Ministry has informed the committee that the Operating Ratio for Railways in a year should be considered appropriate/reasonable if the same ensures adequate Net Revenue for catering to Railways’ Capex needs from internal resources during a year after fully meeting its revenue expenditure.

“While adjudging the reasonableness of Railways, the ever growing social service obligations borne by Railways should not be lost sight of. The same is Rs 49,854 crore in 2021-22, which impacts the Railways’ Operating Ratio adversely,” the Ministry said.

As regards the long-term measures, the Railways have been putting thrust on capacity improvement works such as dedicated freight corridor, doubling/quadrupling and electrification.

The ongoing last-mile projects and priority projects are getting ring-fenced allocation for early completion, so that these, along with the capacity enhancement projects, enhance traffic throughput substantially and thereby increase railway revenues.

“These are expected to contribute to improvement in the operating ratio to a reasonable level,” the Ministry added.

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