Indian railways to face historic shortfall due to Coronavirus

15 June 2020 4 min. read

Indian Railways is expected to record unprecedented losses of up to Rs. 25,000 crore as a result of the Covid-19 crisis, according to new analysis from The Strategy Boutique. The full extent of the loss depends on when the lockdown is lifted and how quick Indian travellers restore their faith in commuting by train.

Passenger revenues have all but dried up for the state-operated entity, while the sudden imposition of the lockdown forced Indian Railways to dish out substantial sums in refunds. As a result, the organisation has developed a lopsided reliance on freight revenues in recent weeks, as the transportation of goods has continued to some extent. Rates of freight transportation have also increased in recent years, making it a strong revenue source.

Nevertheless, restricted border access and the closure of zones has led to declining freight revenues as well, which could spell disaster if restrictions are not lifted soon. Delhi-based management consultancy The Strategy Boutique (TSB) has put forth three potential scenarios that might unfold depending on how government restrictions progress in the next few weeks.

Running shortfall/surplus if restrictions open in early June

Scenario one is the lightest, where restrictions are lifted in mid-June and freight numbers begin to improve over June, July and August. By August, the year-on-year decline will have dropped to 3%, as compared to nearly 45% in April. By September, revenues should be back to normal.

Passenger revenues, meanwhile, will remain dismal for the rest of the year according to The Strategy Boutique. Even if lockdown restrictions are lifted, coaches are likely to be filled to a much lesser extent due to health & safety concerns about the virus. Overall, scenario one will generate an annual loss of approximately Rs. 5,000 crores for Indian Railways.

In scenario two, a two-week delay in the lifting of lockdown restrictions will make a substantial difference to revenues. In the event that restrictions remain till the end of June, Indian Railways will lose freight revenues from a large part of June, while things will be slower to pick up through July and August.

Running shortfall/surplus if restrictions open in late June

By the end of August, the year-on-year decline in freight revenues will be nearly 8%. As a result, the annual loss for Indian Railways will surpass Rs. 12, 000 crore. This is assuming that some momentum is gained in November. According to the researchers, Indian Railways will need a bailout from the central government if the loses reach such high levels.

The worst case scenario

Scenario three is the most bleak according to The Strategy Boutique. In this case, the lockdown persists till mid-July, while revenues take till at least October to regain momentum. The year-on-year decline for June will reach nearly 60% in this case, following which revenues from half of July will ease the dip.

The annual loss will amount to well over Rs 15,000 crore, while revenue streams will only normalise by the start of next year. According to the analysis, the loss range from scenario one till scenario three is the highest level that the organisation has ever had to face in its 167-year history.

Running shortfall/surplus if restrictions open in mid-July

“This magnitude of losses can’t be simply written off from the books of accounts. They have to be dealt with in a structured manner and assistance from the Government will be absolutely essential to ensure the lifeline of the country doesn’t drown in these losses,” said the report.

Given the overwhelming financial burden from Covid-19, the central government is also likely to be pressed for funds. As pointed out by the report, Indian Railways will need structural change, evidenced by the fact that its revenue streams were already declining before the crisis. More efficient road networks as well as more efficient freight systems developed by the company itself over the years have led to a dip in freight revenues.

The consultants warn that if the organisation fails to modernise, it may end up in the same boat as state-run airline Air India, which has been restructuring for a number of years now. “There is an immediate need for the organisation to reinvent and develop other modes of earnings to sustain,” said the firm.