Of every rupee spent by the railways on fuel such as HSD (high speed diesel) ‘only 48 paise is the real intrinsic value,’ rues R. N. Misra in ‘Indian Railways Turnaround: A study in management’ (www.jaicobooks.com). In the remaining 52 paise are “taxes such as customs, cess, sales tax and other local taxes. In addition to this, some state governments, such as Gujarat, Karnataka and Andhra Pradesh, have imposed a hefty entry tax on inter-state movement of HSD oil resulting in a heavy burden on the fuel bills,” he explains.
Even state electricity boards charge unreasonably high tariffs for electricity supplied for the railways electric traction, twice or thrice more than the rates on which they purchase it from NTPC, the author informs. “The railways normally carry 60 per cent of freight traffic on electric traction.” He wonders why the railways, a bulk consumer of electricity that regularly settles its dues, and working at four to eight times higher energy efficiency than the roads, should not get preferential treatment from energy providers.
A section on ‘cost of services’ speaks of seven areas to be understood about pricing by the railways. First, transportation service is neither storable nor transferable; and once it is created it must also ‘generate’ its own demand and in the short run it has a tendency to be reduced to zero if it remains unutilised, Misra begins.
The second point is about the ‘lumpiness in investment, which may exceed the actual need and thus inflate the cost of service.’ Third, the gestation period of developing transportation service being long, ‘providing services to match the demand requires accurate forecasting.’
Of interest to the costing professionals is the fourth area, relating to the presence of joint costs in railways, with many ‘non-core’ activities as intrinsic part of the railways. “The Japanese railways earn profits more from non-core business than actual traffic services,” the author notes. Another point is about ‘telescopic’ rates, that is, the longer one travels, the lesser he pays, as an application of diminishing cost principle to transportation.
Towards the end of the book is a discussion on the concept of good loading. It is not heavy loading or higher axle loading, but loading to the fullest capacity, the author clarifies. This could lead to fewer wagons better utilised, more space for loading in the shed, and siding accommodation for greater number of destinations.
“In case of high capacity wagons, the amount of shunting and marshalling decreases in relation to the increase in average load. In the same way, the number of trains may be reduced thereby economising tractive power.”