Rail Budget 2015: Prabhu misses Modi’s target on efficiency, but hopes to better it

The Indian Railways has fallen short of expectation on the efficiency front this year even as it aims for an ambitious improvement in the next financial year as per the Railway Budget presented by the minister Suresh Prabhu.

The organisation’s operating ratio, a key measure of its efficiency, has improved only marginally to 91.8 percent in 2014-15 over the previous year. However, it missed the target set by prime minister Narendra Modi by a wide margin.

Investopedia defines operating ratio as “a ratio that shows the efficiency of a company’s management by comparing operating expense to net sales.”

“The smaller the ratio, the greater the organization’s ability to generate profit if revenues decrease,” it says. However, this doesn’t take debt repayment or expansion into account.

A 91.8 percent operating ratio means, the railways has been able to save on 8.2 paise for every Re 1 earned. As much as 91.2 paise has been utilised to meet the working expenses.

Working expenses of the railways include spending related to administration, operation, maintenance and repairs of lines open for traffic and provision towards pension fund and development reserve fund.

The prime minister had in September set a target of 90 percent for the railways. According to an earlier report in The Times of India, the target sent railways officials into a tizzy to meet it. But the budget document shows that they have failed in their efforts.

However, the minister has set an aggressive target of 88.5 percent for the next financial year.

The marginal increase in the operating ratio means that the railways is still struggling on efficiency front. It has not been able to decrease its working expenses.

One key aspect that can improve the efficiency and decrease the Railways’ spending is by bettering the on-time performance of the passenger and goods trains. This will reduce the expenditure on fuel  and also overtime salary payments to drivers.

The railways’ best operating ratio was in 1963-64 at 74.7 percent. Lalu Prasad Yadav, who held the portfolio during 2004-08, had also managed to pull off better ratio at 78.7 percent in 2006-07 and 75.9 percent in 2007-08.

Data compiled by Kishor Kadam