Data | Will the roll out of AC III tier economy class bring loss-making Railways back on track? Premium

AC III tier was the only class that made consistent profits in the FY13-FY20 period, while all the other classes except AC chair car posted losses

Gandhidham-Tirunelveli Weekly Humsafar Express (all 3-Tier AC coaches) arrived at Mangaluru Junction in Mangaluru | Photo Credit: H S MANJUNATH

The Indian Railways’ experiment to introduce AC III tier economy class coaches has started to pay off. Since its introduction, in the last one year, these coaches have earned the Railways more than ₹230 crore in revenue by ferrying around 21 lakh passengers. Fares in AC III tier economy are 6%-7% cheaper than the AC III tier class. The economy class has a capacity of 83 berths compared to 72 in the regular coach.

Only 370 such coaches have been used so far, but with demand picking up, the Railways has planned to add more such coaches. Data suggest that adding more AC III tier economy class coaches is a step in the right direction. In recent years, the operating margin of the Indian Railways has taken a beating. Latest data show that the Railways spends ₹98 to earn ₹100. It has consistently failed to meet the expected revenue internally, and its reliance on extra-budgetary resources such as funds from LIC and market borrowings has significantly increased.

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Chart 1 shows the operating ratio (OR) of the Railways in the last 12 years. OR measures the amount spent by the Railways to earn ₹100. Between FY09 and FY16, OR ranged from 90% to 95%. But between FY17 and FY20, it ranged from 96% to 98%. In other words, the Railways was spending ₹98 to earn ₹100.

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Chart 2 shows 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 FY20, while reliance on extra budgetary resources to raise funds rose from 5% to 26% during the same period.

The AC III tier is the only class of service which has generated consistent 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 earnings from travellers. Such a low-passenger, high-revenue dichotomy was not seen in any other class. On the other hand, a high-passenger, low-revenue dichotomy was seen in the inexpensive classes. For instance, over 90% passengers travelled by second class which accounted for only 37% of the earnings. Table 3 shows the relevant data for all classes of service.

While the first AC and second AC coaches also ferry a smaller share of passengers, their share in earnings was far lower than AC III tier. While the average rate charged per passenger per kilometre in first AC, second AC and executive AC coaches was higher than AC III tier, their share in total earnings was lower. And so, AC III tier stands out. It is not as expensive as the other AC classes and at the same time, its share in revenue has not been impacted by the relatively low pricing.

Table 3 also shows the class-wise share in passenger kilometres. One passenger kilometre is the equivalent of transporting one passenger over one kilometre.

Table 4 further brings out the uniqueness of AC III tier. It shows operational losses (in ₹crore) incurred while operating various classes of service. A negative figure points to losses incurred. For instance, in operating AC first class service, the Railways incurred a loss of ₹403 crore in FY20. In contrast, the Railways made a profit of ₹65 crore by operating AC III tier coaches. The table shows that AC III tier was the only class which made profits in the FY13-FY20 period, while all the other classes except AC chair car posted losses. So, the move to introduce an economy version of AC III tier may help the Indian Railways get back on track.

With inputs from Yuthika Bhargava

Source: CAG, Indian Railways

Watch the Data Point video explaining why the 3rd AC coach has been bringing in more money for the Railways at a time when the sector is struggling financially.