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Correspondent

23 August 2024 at 4:29:04 pm

Festive Surge

India’s bazaars have glittered this Diwali with the unmistakable glow of consumer confidence. The country’s festive sales crossed a staggering Rs. 6 lakh crore with goods alone accounting for Rs. 5.4 lakh crore and services contributing Rs. 65,000 crore. More remarkable still, the bulk of this spending flowed through India’s traditional markets rather than e-commerce platforms. After years of economic caution and digital dominance, Indians are once again shopping in person and buying local....

Festive Surge

India’s bazaars have glittered this Diwali with the unmistakable glow of consumer confidence. The country’s festive sales crossed a staggering Rs. 6 lakh crore with goods alone accounting for Rs. 5.4 lakh crore and services contributing Rs. 65,000 crore. More remarkable still, the bulk of this spending flowed through India’s traditional markets rather than e-commerce platforms. After years of economic caution and digital dominance, Indians are once again shopping in person and buying local. This reversal owes much to policy. The recent rationalisation of the Goods and Services Tax (GST) which trimmed rates across categories from garments to home furnishings, has given consumption a timely push. Finance Minister Nirmala Sitharaman’s September rate cuts, combined with income tax relief and easing interest rates, have strengthened household budgets just as inflation softened. The middle class, long squeezed between rising costs and stagnant wages, has found reason to spend again. Retailers report that shoppers filled their bags with everything from lab-grown diamonds and casual wear to consumer durables and décor, blurring the line between necessity and indulgence. The effect has been broad-based. According to Crisil Ratings, 40 organised apparel retailers, who together generate roughly a third of the sector’s revenue, could see growth of 13–14 percent this financial year, aided by a 200-basis-point bump from GST cuts alone. Small traders too have flourished. The Confederation of All India Traders (CAIT) estimates that 85 percent of total festive trade came from non-corporate and traditional markets, a robust comeback for brick-and-mortar retail that had been under siege from online rivals. This surge signals a subtle but significant cultural shift. The “Vocal for Local” and “Swadeshi Diwali” campaigns struck a patriotic chord, with consumers reportedly preferring Indian-made products to imported ones. Demand for Chinese goods fell sharply, while sales of Indian-manufactured products rose by a quarter over last year. For the first time in years, “buying Indian” has become both an act of economic participation and of national pride. The sectoral spread of this boom underlines its breadth. Groceries and fast-moving consumer goods accounted for 12 percent of the total, gold and jewellery 10 percent, and electronics 8 percent. Even traditionally modest categories like home furnishings, décor and confectionery recorded double-digit growth. In the smaller towns that anchor India’s consumption story, traders say stable prices and improved affordability kept registers ringing late into the festive weekend. Yet, much of this buoyancy rests on a fragile equilibrium. Inflation remains contained, and interest rates have been eased, but both could tighten again. Sustaining this spurt will require continued fiscal prudence and regulatory clarity, especially as digital commerce continues to expand its reach. Yet for now, the signs are auspicious. After years of subdued demand and inflationary unease, India’s shoppers appear to have rediscovered their appetite for consumption and their faith in domestic enterprise. The result is not only a record-breaking Diwali, but a reaffirmation of the local marketplace as the heartbeat of India’s economy.

Balancing the Books While Staying on Track

Updated: Feb 27

Despite growing revenues, Indian Railways grapples with financial constraints and an evolving transport landscape.

Indian Railways

Indian Railways is the lifeline of the nation, moving millions of passengers and billions of tonnes of freight. Its sheer scale is staggering: 68,000 kilometres of track, over 13,000 passenger trains daily and a workforce of more than a million people. Despite its indispensable role in India’s economy, the financial engine that powers this vast enterprise remains a puzzle of constrained revenues, mounting operational costs and a delicate balancing act between public service and profitability.


Gone are the days when the Railway Budget was an annual spectacle, with politicians announcing new trains like festival giveaways. Since 2017, the railway’s finances have been absorbed into the Union Budget, a move that signified both modernization and a shift towards greater fiscal scrutiny. Yet, old tensions persist. Indian Railways is expected to be both a people’s service and a revenue-generating behemoth, a contradiction leading to a financial model heavily reliant on freight cross-subsidization.


For all its grandeur, the Indian Railways is largely bankrolled by its freight business. In FY 2025-26, freight operations are expected to bring in Rs. 1.88 trillion, accounting for 62 percent of total revenue. Coal alone contributes nearly half of all freight earnings, making the Railways deeply intertwined with India’s energy and industrial ecosystem. Cement, containers and agricultural produce form the next biggest categories, though their revenue share remains modest in comparison.


Freight transport has historically grown at an average of 4 percent annually, and Indian Railways aims to push this higher with increased capacity and efficiency. However, the competitive landscape is shifting. As highways improve and logistics companies capitalize on faster road transport, rail freight is under pressure to reinvent itself. While the Railways offers an economical and environmentally sustainable freight solution, it must find ways to remain competitive against road and air transport that promise speed and flexibility.


Indian Railways’ passenger segment is a paradox - an essential public service that routinely runs at a loss. Revenue from passenger services is expected to touch Rs. 0.92 trillion in FY 2025-26, marking a steady increase. Yet, in the absence of fare revisions, this growth is largely organic. The Railways measures passenger traffic in Passenger Kilometres (PKM), and by this metric, both suburban and long-distance travel are seeing healthy increases.


A telling shift has been the rising preference for air-conditioned travel. AC services now account for 29 percent of total passenger volume, up from just 10 percent a decade ago, signalling an emerging middle class willing to pay more for comfort.


Running one of the world’s largest railway networks is not cheap. The Railways’ revenue expenditure for FY 2025-26 is budgeted at Rs. 2.99 trillion, with nearly 43 percent allocated to salaries, 23 percent to pensions, and a significant chunk to power and fuel. These expenses leave little room for flexibility.


Adding to this is the cost of financing. The Indian Railway Finance Corporation (IRFC) borrows from the market to fund rolling stock, and lease payments to IRFC now make up 11 percent of total expenses from 7 percent just two years ago. The operating ratio, a key financial indicator measuring expenses per Rs. 100 of revenue, stands at a daunting 98.4 percent. In simpler terms, for every Rs. 100 earned, the Railways spends Rs. 98.40, leaving an operating surplus so thin that even minor financial shocks could prove disruptive.


The government remains the primary financier of capital investments in Indian Railways. Over the past three years, a significant portion of this has been allocated to manufacturing new rolling stock, expanding and doubling existing lines, and modernizing infrastructure.


However, one area seeing a notable decline is funding for railway public sector undertakings (PSUs). Government capital infusion into railway PSUs has been steadily reduced, reflecting a shift towards greater financial self-reliance for these entities.


The Railways is no longer the unchallenged transportation giant it once was. The rise of efficient highway networks and budget airlines has cut into its passenger market. Indian Railways, despite its scale, is now in direct competition with alternative transport ecosystems that offer greater speed and convenience.


Should the Railways chase profitability or remain a public service at a loss? Political reluctance to raise fares has deepened its reliance on freight cross-subsidization, straining its financial model. With fare rationalization, freight modernization, and cost control on the horizon, tough choices loom. One thing is certain: the train cannot afford to slow down.

(The author is a Chartered Accountant and works at Authomotive Division of Mahindra and Mahindra Limited. Views personal.)

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