In the fiscal year just gone by, Indian Railways posted the lowest revenue growth since 2010-11. As the chart shows, this very low revenue growth tracks the minuscule growth in freight volumes for the year.

Revenue in 2015-16 increased 4.6%, much lower than the 10-19% growth the national carrier registered in the previous four fiscal years. These facts will be a dampener for hopes that the railways will buttress the government’s capital expenditure plans.

Falling freight volumes, from which the railways generates three-fifths of its revenues, are undermining revenue growth. They dropped 1% in the last five months of 2015-16. For the full year, freight volumes increased just 0.6%, compared with 4-5% growth in the previous four fiscal years. The weak revenue trends reflect the subdued economic activity. Cement and container traffic, in particular, fell.

The passenger business didn’t do well either. Passenger bookings fell 0.9%. Revenue grew 5.9%, but the growth is significantly slower than what the national carrier saw in recent years.

According to Soumyajit Niyogi, associate director (credit and market research group) at India Ratings and Research, slowdown in economic activity and low capacity utilization levels at commodity and heavy engineering sectors are the primary reasons for the revenue and traffic slowdown.

The slump in revenue growth is also partly due to the uncompetitive position the railways has got itself into. Successive tariff hikes (in earlier budgets) and fall in diesel prices helped roadways gain market share, especially in short-haul freight traffic. “Rail-road freight tariff variation has reached a tipping point now. Fall in diesel prices and improvement in road infrastructure have put rail freight transportation in a less attractive position in some routes," adds Niyogi.

Of course, the railways is taking corrective measures. It recently withdrew the port congestion surcharge and plans to rationalize its tariff structure vis-à-vis other modes of transportation.

While the measures can take time to show results, a further slowdown in revenue can upset budget estimates, especially considering the fact that the railways is preparing to implement the Seventh Pay Commission recommendations, which will substantially raise its expenses.

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