How a Supreme Court verdict may put Railways' finances under strain

📌 Summary:

• A May 8 Supreme Court order cancelled Indian Railways' "Deemed Licensee" status, which had let it draw grid electricity through open access without paying cross-subsidy and additional surcharges

• The Railway Board warns this will raise traction energy costs (the electricity needed to run trains) by over 30%; Railways is the country's single largest electricity user, having spent Rs 32,378 crore on traction power in 2024-25

• The strain is compounding: in April, freight loading fell 1% and freight earnings fell a sharper 5% (below April 2024 levels), while ordinary working expenses rose 11.6% and pension expenditure 9.1%

• Railways' operating ratio has stayed above 98% (it spends over Rs 98 to earn Rs 100); higher power costs plus weaker freight could worsen it further

• Net earnings remain marginal — Rs 2,660 crore in 2024-25, revised down to Rs 1,957 crore for 2025-26

• Freight contributes over 65% of total revenue because passenger services are subsidised; FY27 revenue and expenditure are pegged at Rs 3.02 lakh crore and Rs 2.99 lakh crore

• Under the Electricity Act, 2003, "open access" consumers pay a Cross-Subsidy Surcharge and an Additional Surcharge to offset distribution licensees' losses from supplying subsidised tariffs to farmers and low-income households

🎯 UPSC Relevance: GS3 Economy / Infrastructure — Railways finances, power-sector regulation, the operating ratio, and how judicial decisions reshape PSU economics.

📝 Prelims Facts:

• "Deemed Licensee", "open access" and the Cross-Subsidy Surcharge are concepts under the Electricity Act, 2003
• Railways' operating ratio has stayed above 98%
• Traction energy spend in 2024-25: Rs 32,378 crore; freight contributes over 65% of Railways revenue

🔑 Key Term: Operating Ratio — the ratio of working expenses to revenue; a Railways operating ratio of 98% means it spends Rs 98 to earn Rs 100.