NEW DELHI: The growth in Indian Railways’ freight revenues is tapering off, due to the twin impact of tough competition from other modes of transport of goods, and a deliberate strategy being adopted by the transporter to progressively reduce cross-subsidisation of the passenger segment.
As per the Budget 2024-25, the freight revenue growth in FY24 stood at just 3% as compared to 15% in FY23. The growth was 20% in FY22, but it was on a low base (3% in FY21 and -11% FY20) caused by the pandemic. Even though the government has budgeted a 7% rise in the freight receipts in FY25, experts feel the growth might turn out to be lower than that. The deceleration in annual freight receipt growth is despite loading volumes being on a high growth trajectory.
“The freight rates are going down because the railways is pushing for a higher market share in the goods transportation market. The railways understands that users will not shift from roads if they hike the rates. The stiff competition from other modes (road, air, and inland waterways) is putting the pressure on pricing,” said Harshit Kapadia, VP (consumer durables, electrical & capital goods) at Elara Securities.
A positive spin-off of the subdued rail freight is that it could keep inflation in check. Since the bulk commodities being transported via the rail network belong to the relatively early stage of value addition, low freight could have economic-wide benefits, and help boost consumption.
It’s estimated that the freight volume in FY25 will be at 1,650 million tonnes (MT) as against 1580 MT in FY24 and 1509 MT in FY23. But despite high freight volumes, the per-tonne revenue squeezed from Rs 1075 in FY23 to Rs 1070 in FY24. In the same period, per-passenger revenue has jumped from Rs 99 in FY23 to Rs 107 in FY24.
Besides competition, analysts observe a bunch of factors contributing to the slowdown in freight revenues. In a 2023 report, The Energy and Resources Institute (TERI) said that the cross-subsidisation of passenger operation from freight business has resulted in sub-optimal prices being charged on freight transport. “The passenger segment needs to be financially viable and market-driven with any subsidisation to the marginalised from the union budget itself. A move towards market-driven freight tariff policy can be considered,” the report said.
Experts said that lower freight rates could well be a strategic move by the government to keep the inflation under check since higher logistics costs can have far-reaching impact on the commodity prices. As such, the national rail plan envisages 30% reduction in freight rates by 2030.
For decades, profit-making freight segment is being used to cross subsidise passenger fares. For example, railways minister Ashwini Vaishnaw, on multiple occasions, have said that the national transporter is charging just Rs 45 from passengers for a ticket that costs Rs 100. “By introducing premium trains such as Vande Bharat Express, and the dynamic pricing mechanism, there’s a concerted effort to increase the share of passenger revenues in the overall pie,” said a former railways ministry official. For instance, the passenger revenues as a percentage of freight revenues has gone up from 39% in FY23 to 43.2% in FY24.
Analysts feel that once the western DFC (dedicated freight corridor) becomes fully operational by end of next year, the freight costs will come down further, helping reduce the freight rates further. At present, the freight trains are stabled or detained in-route for the passage of passenger trains that bring down their average speed. With DFC offering speeds of 75-80 kmph, the shorter transit time will result in lower cost of transportation.
Meanwhile, the high dependency on coal shipments for revenue indicates the railways’ inability to diversify its revenue sources for freight operations, and also reduces the capacity of railways to carry other high-margin commodities such as perishables, automobiles and industrial goods. “This may have serious implications for the overall revenue from freight operations in future, when the requirement of coal gradually diminishes with phasing out of coal based thermal power plants,” said the TERI report.
Source: The Financial Express
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