Non-fare revenue in Indian railways: Policy analysis

Abstract

The growth rate of Railways earnings from its core business of running freight and passenger trains has been declining. This is due to a decline in the growth of both freight and passenger traffic. A decline in internal revenue generation has meant that Railways funds its capital expenditure through budgetary support from the central government and external borrowings. While the support from central government has mostly remained constant, Railways external borrowings have been increasing. Under such circumstances where the earning from the transportation business is declining, it is very important to concentrate on non-transportation business. In spite of best efforts, the railways has not done sufficient inroads in non-fare revenue and it remained @ 3 to 5% of the total gross receipts of Indian railways where as many of the world railway systems generate 10 to 20 percent of their revenues from non-fare sources. Indian Railways ambition to raise its non-fare revenue from less than 5% to 20% of its total earnings to match world railway systems seems unattainable because of lack of policy direction. However, in 2017 new non-fare revenue policy has been introduced in Indian railways with the objective of matching the world railway systems to generate 10% to 20% of revenues from non-tariff sources. In this direction it has been decided to monetize all physical and digital assets viz., Trains (Inside &Outside), Passengers, Station platforms, Buildings and Residential colonies, Land next to track, Tickets etc. The new concepts like Station redevelopment, Advertisement in mobility assets, Out-ofhome advertisement, Rail Display Network and content-on-demand have been introduced. Though the new NFR policy is a radical departure from the earlier policies where the decision-making process has been centralized, this policy paper aims to analyze whether objective of increasing non-fare revenue share from 5% to 20% is attainable or not? Along with some recommendations for attaining this objective. The objective of increasing the non-fare revenue is to increase the internal resource of railways to support the capital investment but for increasing non-fare revenue a huge capital investment is required. In this direction a new NFR policy has recommended for innovative means of project financing like PPP, Modified swiss challenge, EPC and even in few cases PSU’s are involved for station redevelopment. In case of advertising, concepts like Railway Display Network and Content-on-demand are introduced which are proposed to be built and operated on a self-sustainable model with no capital investment by Indian Railways. Though the new NFR policy is a radical shift from the earlier policies in terms of imagination and investment and also a dedicated directorate at Railway Board with many of its institutions like RITES, RailTel, IRCON, RLDA and IRSDC are working to implement this policy successfully, it has not shown the intended results. Only two stations are in the advanced stage of completion and only one tender for content-ondemand has been finalized. The poor performance of the NFR policy can be attributed to several reasons, including policy flip flop, failure to have dedicated teams for a fixed tenure and an attempt to micromanage, rather than macro-managing the initiatives. After studying the policy of non-fare revenue in Indian Railways for the last twenty years, in the initial phase the policies were lacking the required vision, though the new policy has brought in the required vision it has failed in creating the institutions for effective implementation. The paper has provided its recommendations based on the success stories of JR east and other world railway systems. JR east has made a significant growth in non-transportation business. On its establishment (1988) the ratio of transportation to non-transportation revenue was 9:1 and as per 2018 annual report it is 7:3 and they have set a target of 6:4 by 2027. The simple way of giving a continuity to the policy framework is creating an institution with a specific purpose so that the direction of the policy cannot be changed with the change in the leadership. JR East has created subsidiaries like JR east retail net, Nippon restaurant Enterprise and East Japan Marketing & communications which manages the retail and services: JR east building, JR east urban development, Nippon Hotel and Sendai Terminal Building manages Real Estate & Hotels: JR East Information Systems manages Suica &IT business. They have in collaboration with metropolitan government changed the floor area ratio for a specific region and adopted the Land Value Capture model of financing for station development projects. On similar lines policy paper has made recommendations for creating a dedicated institutional framework for successful implementation and management of Non-Fare Revenue in Indian Railways.