Indian Railways: The Economics of a Giant
The Operating Ratio: Railways' Report Card
What the operating ratio measures, why Indian Railways' ratio hovers near 100, and what that means for investment.
The operating ratio is a key measure of Indian Railways’ finances.
Definition
It shows how many rupees the railways spend to earn 100 rupees.
- An operating ratio of 98 means spending 98 rupees to earn 100 rupees, leaving just 2 rupees surplus.
- Above 100 means a loss.
Recent levels
Indian Railways’ operating ratio has typically been in the high 90s, around 98 percent in recent budgets. This means very little surplus is left for investment.
Why so high
- Salaries and pensions: staff costs take a very large share of spending.
- Fuel costs.
- Passenger subsidies.
Consequences
- Little internal money for new lines, safety or modernisation.
- Dependence on government budget support and borrowing.
Accounting debates
Critics note that some costs, like pensions, have been adjusted in different ways across years, affecting the reported ratio.
A family earning 1 lakh rupees a month and spending 98,000 has almost nothing left to save for a new house. Indian Railways faces the same problem when it wants to invest.
It means spending 98 rupees to earn 100, leaving only a small surplus.
- The operating ratio is spending per 100 rupees earned.
- Indian Railways' ratio is typically in the high 90s.
- Salaries, pensions and fuel drive costs.
- A high ratio leaves little for investment.
No recording for this one yet - EconReader can read it aloud for you.