The Indian Railways is one of the largest railway networks in the world, with more than 20,000 trains carrying 811.6 crore passengers and 110.6 crore tonne of goods every year across the length and breadth of the country. But it is also a loss-making sector that has been toying with the idea of privatisation for a while.
On June 26, The Indian Express reported that the central government was considering privatising passenger trains running on busy routes. Two days later,the railways minister denied this in Parliament.
But he did not say anything about another claim attributed to railway officials in the media reports: that the government was considering assigning two trains to the Indian Railways Catering and Ticketing Corporation to run on an experimental basis.
A public sector enterprise, the IRCTC is best known as a favourite punching bag for irate passengers trying to book train tickets online. Innumerable internet discussions have been spawned by glitches on its website, though, with around nine lakh transactions every day, it is one of the largest e-commerce platforms in Asia.
When it was started in 1999, the idea of booking tickets online was nothing short of revolutionary. Indians spent hours queuing up for train tickets, or paid hefty commissions to agents. “It was simply unthinkable to book a ticket online to go from Delhi to Chennai,” said Amitabh Pandey, who worked as its general manager of IT services from 2001 to 2006.
But passenger convenience was not the only concern – the government recognised that introducing more efficiency in customer services could fetch the railways higher returns.
As the IRCTC website states, it was created under the railways ministry with the “basic purpose of hiving off entire catering and tourism activity of the railways to the new Corporation so as to professionalise and upgrade these services with public-private participation.”
So how has the IRCTC fared in two decades?
How it started
As the name suggests, there is more to IRCTC than ticketing. It has a monopoly over catering services on trains as well as food courts and kiosks at railway stations. It even operates budget hotels, taking advantage of the land owned by the railways.
In fact, it was started in 1999 with the intention of providing just catering services, Pandey said. Initially, passengers did not have many options to purchase quality food during train journeys. They had to depend upon the food stalls after the train stopped for a few minutes. But even though IRCTC was started for catering, it ended up tapping other avenues like ticketing.
“The issue of reserving tickets on the internet was not an original idea but it was new for India,” said Pandey, who worked under MN Chopra, who served as the corporation’s first chairman and managing director.
The telecom industry had started to boom after liberalisation. But even then, making phone calls was an expensive affair. Computers were used only by a select few who could afford them. So how would the IRCTC website function? And who would use it?
“The necessary infrastructure was already in place by the time we started working on this,” Pandey said. Interestingly, the railways already had a computerised backend that was built in the 1980s. “The data bases were all centralised,” he said. “You would have to stand in line to get your ticket but the person issuing it would be using a computer to do so.”
IRCTC’s website started issuing tickets online in 2002.
But another question was how would physical copies of tickets reach passengers since short messaging services – or sms on mobile phones – had not begun yet. “The courier services were very well established,” said Pandey. “So we decided to print out tickets in our format and courier it to the passengers who would receive it within a day or two.”
Apart from this, the bigger challenge for IRCTC was to establish that e-commerce was a feasible venture in India. “There were no e-commerce ventures at the time,” Pandey said. “In the 1990s all we heard was of someone named Jeff Bezos who started this thing called Amazon.”
The response IRCTC got initially was mixed, he said. “People said it wouldn’t work but some bureaucrats believed in it. And when it worked, it really showed that the Indian consumer is savvy.”
How it fared
But while IRCTC might have served the interest of passengers, has it made profits for the government?
Its last annual report, for the year 2017-’18, does not look promising.
That year, IRCTC recorded a turnover of Rs 1468.1 crore with losses of Rs 693 crore. The losses were partly attributed to the removal of the service charge from online ticket bookings in November 2016 by the Central government.
Until then, the IRCTC was allowed to levy a service charge of Rs 20 on every non-air conditioned reserved ticket and Rs 40 on every air conditioned ticket booked online. With IRCTC selling tickets worth Rs 24,485 crore in 2016-’17, accounting for nearly one-third of all train reservations made in India that year, the service charges added up to a total of Rs 416 crore.
Despite sharing 50% percent of these revenues with the railways ministry, the corporation made Rs 211 crore as profit after tax that year, higher than Rs 188.6 crore in 2015-’16.
But its profits plummeted after the service charge on tickets was removed. This was done to boost digital transactions after the government demonetised high-value currency notes in November 2016.
“IRCTC needs to be able to fund itself for its expansion,” said Pandey. “The service charge was a way to do this but its removal was perhaps purely for political reasons only.”
Scaling up and down
But ticketing is a much smaller source of revenue compared to catering services, which accounted for 48.2% of its revenues in 2017-’18. This includes both licenced catering, or contracting out tenders to other firms to provide food on trains and at stations, and departmental catering for each of the 16 zones of the railways.
But catering has not always contributed to IRCTC’s growth.
Until 2005, IRCTC had a monopoly over serving food on trains. It contracted out catering services to other firms, earning large profits. But this policy was reversed in 2009 by then railways minister Mamata Banerjee in the United Progressive Alliance government’s second term. The move was aimed at dismantling catering cartels.
The new catering policy took away onboard catering services from IRCTC and handed it over to the management of railway zones. The Railway Board decided food menus and fares. The IRCTC was not allowed to renew existing contracts or award fresh ones. It was only permitted to handle food plazas, food courts and fast food units.
In 2011, the online ticketing services were also brought into the railway ministry’s fold. But the ministry’s website could not handle online traffic and IRCTC was back at the saddle the same year.
But it took longer for the corporation to get back its control over catering. In 2017, after complaints of poor food quality poured in, the Bharatiya Janata Party-led government handed back onboard catering services to IRCTC. It was given the power to decide menus and fares, while also setting up new kitchens and upgrading existing ones.
Even though catering and online ticketing came back to IRCTC, its annual turnover in 2017-’18 still recorded a decrease by 4.8% from the previous year.
As its profitability decreased, the IRCTC has had to look for other revenue streams to stay afloat. With e-commerce expanding in India, several online travel agents have signed up with IRCTC to offer railway bookings as an option on their platforms. For this added feature, these companies had to pay IRCTC a one-time fee of Rs 20 lakh and an annual maintenance fee of Rs 10 lakh.
But this changed in June 2018 as the corporation introduced a new fee structure that charged online travel companies on a per ticket basis – Rs 12 plus taxes on every ticket booked. The corporation calculated this could increase its ticketing revenue by ten times.
The next annual report would clarify how well this bet has fared.
Meanwhile, in April 2019, Economic Times reported that the government has plans to raise Rs 1,500 crore by listing two public sector enterprises on the stock market, allowing ordinary investors to pick up stake in them. One of the two enterprises is IRCTC.