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data | Will the loss-making railways be brought back on track with the roll out of AC III tier economy class?

The AC III tier was the only segment that made consistent profits during the FY 2013-FY20 period, while all other categories except AC chair car posted losses.

The AC III tier was the only segment that made consistent profits during the FY 2013-FY20 period, while all other categories except AC chair car posted losses.

the Indian Use of Railways to introduce AC III Tier Economy Class The coaches have started paying. Since its inception, in the last one year, these coaches have ferried around 21 lakh passengers, earning Railways more than 230 crore revenue. Fares are 6%-7% cheaper in AC III Tier economy as compared to AC III Tier class. The economy class has a berth capacity of 83 as against 72 in the regular coach.

So far only 370 such coaches have been used, but with the demand increasing, Railways plans to add more such coaches. The data shows that adding more AC III Tier Economy Class coaches is a step in the right direction. In recent years, the operating margins of Indian Railways have declined. The latest figures show that the Railways spends ₹98 to earn ₹100. It has consistently failed to meet the expected revenue internally, and has significantly increased its dependence on extra-budgetary resources such as funds from LIC and market borrowings.

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chart 1 Shows the Operating Ratio (OR) of Railways over the last 12 years. Or measure the amount spent by railways to earn ₹100. Between FY09 and FY16, the OR ranged from 90% to 95%. But between FY17 and FY20, it ranged between 96% and 98%. In other words, Railways was spending ₹98 to earn ₹100.

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chart 2 Represents the share of internal revenue, extra budgetary resources and gross budgetary support in the total revenue receipts of the Railways. The share of internal resources in total revenue receipts fell from 79% in FY15 to 53% in FY15, while dependence on extra-budgetary resources for raising funds increased from 5% to 26% during the same period.

The AC III tier is the only class of service that has consistently generated profits for the Railways. Between FY16 and FY20, AC III tier coaches carried only 1% of the total passengers but were responsible for 21% of the passenger earnings. Such a low-passenger, high-revenue dichotomy was not seen in any other segment. On the other hand, affordable classes saw a high-passenger, low-revenue dichotomy. For example, over 90% of passengers traveled by second class, which was only 37% of the income. Table 3 Shows relevant data for all classes of service.

While the first AC and second AC coaches also carry a small share of the passengers, their share in earnings was much less than that of the AC III tier. While the average rate charged per passenger per kilometer in First AC, Second AC and Executive AC coaches was higher than the AC III tier, their share in the total earnings was lower. And hence, the AC III tier is different. It is not as expensive as other AC classes and at the same time, its share of revenue has not been affected by the relatively low price.

Table 3 also shows the class-wise share in passenger kilometers. One passenger kilometer is equivalent to carrying one passenger over one kilometer.

Table 4 Further brings out the exclusivity of the AC III tier. It shows the operating losses (` in crore) incurred during operation of different classes of service. A negative figure indicates a loss. For example, in operation of AC first class service, Railways incurred a loss of ₹403 crore in FY20. In contrast, Railways made a profit of ₹65 crore from operating AC III tier coaches. The table shows that the AC III tier was the only category that made profits in the FY 2013-FY20 period, while all other categories except AC Chair Car reported losses. Hence, the move to introduce an economy version of the AC III tier may help bring Indian Railways back on track.

With inputs from Yuthika Bhargava

Source: CAG, Indian Railways

Read also: Merger for better management of Indian Railways

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