Freight traffic: Railways majorly transports bulk freight, and the freight basket has mostly been limited to include raw materials for certain industries such as power plants, and iron and steel plants. It generates most of its freight revenue from the transportation of coal (43%), followed by cement (8%), food-grains (7%), and iron and steel (7%). In 2018-19, Railways expects to earn Rs 1,21,950 crore from its freight traffic.
Passenger traffic: Passenger traffic is broadly divided into two categories: suburban and non-suburban traffic. Suburban trains are passenger trains that cover short distances of up to 150 km, and help move passengers within cities and suburbs. Majority of the passenger revenue (94% in 2017-18) comes from the non-suburban traffic (or the long-distance trains).
Within non-suburban traffic, second class (includes sleeper class) contributes to 67% of the non-suburban revenue. AC class (includes AC 3-tier, AC Chair Car and AC sleeper) contributes to 32% of the non-suburban revenue. The remaining 1% comes from AC First Class (includes Executive class and First Class).
Railways’ ability to generate its own revenue has been slowing
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. Some of the reasons for such decline include:
Freight traffic growth has been declining, and is limited to a few items
Growth of freight traffic has been declining over the last few years. It has declined from around 8% in the mid-2000s to a 4% negative growth in mid-2010s, before an estimated recovery to about 5% now.
The National Transport Development Policy Committee (2014) had noted various issues with freight transportation on railways. For example, Indian Railways does not have an institutional arrangement to attract and aggregate traffic of smaller parcel size. Further, freight services are run with a focus on efficiency instead of customer satisfaction. Consequently, it has not been able to capture high potential markets such as FMCGs, hazardous materials, or automobiles and containerised cargo. Most of such freight is transported by roads.
The freight basket is also limited to a few commodities, most of which are bulk in nature. For example, coal contributes to about 43% of freight revenue and 25% of the total internal revenue. Therefore, any shift in transport patterns of any of these bulk commodities could affect Railways’ finances significantly.
For example, if new coal based power plants are set up at pit heads (source of coal), then the need for transporting coal through Railways would decrease. If India’s coal usage decreases due to a shift to more non-renewable sources of energy, it will reduce the amount of coal being transported. Such situations could have a significant adverse impact on Railways’ revenue.
Freight traffic cross-subsidises passenger traffic
In 2014-15, while Railways’ freight business made a profit of about Rs 44,500 crore, its passenger business incurred a net loss of about Rs 33,000 crore.17 The total passenger revenue during this period was Rs 49,000 crore. This implies that losses in the passenger business are about 67% of its revenue. Therefore, in 2014-15, for every one rupee earned in its passenger business, Indian Railways ended up spending Rs 1.67.
These losses occur across both suburban and non-suburban operations, and are primarily caused due to: (i) passenger fares being lower than the costs, and (ii) concessions to various categories of passengers. According to the NITI Aayog (2016), about 77% to 80% of these losses are contributed by non-suburban operations (long-distance trains). Concessions to various categories of passengers contribute to about 4% of these losses, and the remaining (73-76%) is due to fares being lower than the system costs.
The NITI Aayog (2016) had noted that Railways ends up using profits from its freight business to provide for such losses in the passenger segment, and also to manage its overall financial situation. Such cross-subsidisation has resulted in high freight tariffs. The NTDPC (2014) had noted that, in several countries, passenger fares are either higher or almost equal as freight rates. However, in India, the ratio of passenger fare to freight rate is about 0.3.
Impact of increasing freight rates
The recent freight rationalisation further increases the freight rates for certain key commodities by 8.75%, with an intention to improve passenger amenities. Higher freight tariffs could be counter-productive towards growth of traffic in the segment. The NTDPC report had noted that due to such high tariffs, freight traffic has been moving to other modes of transport. Further, the higher cost of freight segment is eventually passed on to the common public in the form of increased costs of electricity, steel, etc. Various experts have recommended that Railways should consider ways to rationalise freight and passenger tariff distortions in a way to reduce such cross-subsidisation.
For a detailed analysis of Railways revenue and infrastructure, refer to our report on ‘State of Indian Railways’.
Overview of Migration
Migration is the movement of people away from their usual place of residence, across either internal (within country) or international (across countries) borders. The latest government data on migration comes from the 2011 Census. As per the Census, India had 45.6 crore migrants in 2011 (38% of the population) compared to 31.5 crore migrants in 2001 (31% of the population). Between 2001 and 2011, while population grew by 18%, the number of migrants increased by 45%. In 2011, 99% of total migration was internal and immigrants (international migrants) comprised 1%.[1]
Patterns of migration
Internal migrant flows can be classified on the basis of origin and destination. One kind of classification is: i) rural-rural, ii) rural-urban, iii) urban-rural and iv) urban-urban. As per the 2011 census, there were 21 crore rural-rural migrants which formed 54% of classifiable internal migration (the Census did not classify 5.3 crore people as originating from either rural or urban areas). Rural-urban and urban-urban movement accounted for around 8 crore migrants each. There were around 3 crore urban-rural migrants (7% of classifiable internal migration).
Another way to classify migration is: (i) intra-state, and (ii) inter-state. In 2011, intra-state movement accounted for almost 88% of all internal migration (39.6 crore persons).1
There is variation across states in terms of inter-state migration flows. According to the 2011 Census, there were 5.4 crore inter-state migrants. As of 2011, Uttar Pradesh and Bihar were the largest source of inter-state migrants while Maharashtra and Delhi were the largest receiver states. Around 83 lakh residents of Uttar Pradesh and 63 lakh residents of Bihar had moved either temporarily or permanently to other states. Around 60 lakh people from across India had migrated to Maharashtra by 2011.
Figure 1: Inter-state Migration (in lakh)
Note: A net out-migrant state is one where more people migrate out of the state than those that migrate into the state. Net in-migration is the excess of incoming migrants over out-going migrants.
Sources: Census 2011; PRS.
Reasons for internal migration and size of migrant labour force
As of 2011, majority (70%) of intra-state migration was due to reasons of marriage and family with variation between male and female migrants. While 83% of females moved for marriage and family, the corresponding figure for males was 39%. Overall, 8% of people moved within a state for work (21% of male migrants and 2% of female migrants).
Movement for work was higher among inter-state migrants- 50% of male and 5% of female inter-state migrants. As per the Census, there were 4.5 crore migrant workers in 2011. However, according to the Working Group Report on Migration, the Census underestimates the migrant worker population. Female migration is recorded as movement due to family since that is the primary reason. However, many women take up employment after migrating which is not reflected in the number of women moving for work-related reasons. [2]
According to the Economic Survey, 2016-17, Census data also underestimates temporary migrant labour movement. In 2007-08, the NSSO estimated the size of India’s migrant labour at seven crore (29% of the workforce). The Economic Survey, 2016-17, estimated six crore inter-state labour migrants between 2001-2011. The Economic Survey also estimated that in each year between 2011-2016, on average 90 lakh people travelled for work.
Figure 2: Reasons for intra-state migration
Sources: Census 2011; PRS.
Figure 3:Reasons for inter-state migration
Sources: Census 2011; PRS.
Issues faced by migrant labour
Article 19(1)(e) of the Constitution, guarantees all Indian citizens the right to reside and settle in any part of the territory of India, subject to reasonable restrictions in the interest of the general public or protection of any scheduled tribe. However, people migrating for work face key challenges including: i) lack of social security and health benefits and poor implementation of minimum safety standards law, ii) lack of portability of state-provided benefits especially food provided through the public distribution system (PDS) and iii) lack of access to affordable housing and basic amenities in urban areas. 2
Poor implementation of protections under the Inter-State Migrant Workmen Act, 1979 (ISMW Act)
The ISMW Act provides certain protections for inter-state migrant workers. Labour contractors recruiting migrants are required to: (i) be licensed, (ii) register migrant workers with the government authorities, and (iii) arrange for the worker to be issued a passbook recording their identity. Guidelines regarding wages and protections (including accommodation, free medical facilities, protective clothing) to be provided by the contractor are also outlined in the law.
In December 2011, a report by the Standing Committee on Labour observed that registration of workers under the ISMW Act was low and implementation of protections outlined in the Act was poor. The report concluded that the Central government had not made any concrete and fruitful efforts to ensure that contractors and employers mandatorily register the workers employed with them enabling access to benefits under the Act.
Lack of portability of benefits
Migrants registered to claim access to benefits at one location lose access upon migration to a different location. This is especially true of access to entitlements under the PDS. Ration card required to access benefits under the PDS is issued by state governments and is not portable across states. This system excludes inter-state migrants from the PDS unless they surrender their card from the home state and get a new one from the host state.
Lack of affordable housing and basic amenities in urban areas
The proportion of migrants in urban population is 47%.1 In 2015, the Ministry of Housing and Urban Affairs identified migrants in urban areas as the largest population needing housing in cities. There is inadequate supply of low-income ownership and rental housing options. This leads to the spread of informal settlements and slums. The Prime Minister Awaas Yojana (PMAY) is a central government scheme to help the economically weaker section and low-income group access housing. Assistance under the scheme includes: i) slum rehabilitation, ii) subsidised credit for home loans, iii) subsidies up to Rs 1.5 lakh to either construct a new house or enhance existing houses on their own and iv) increasing availability of affordable housing units in partnership with the private sector. Since housing is a state subject, there is variation in approach of States towards affordable housing.2
Steps taken by the government with regard to migrant labour during the lockdown
During the lockdown, several inter-state migrant workers tried to return to their home state. Due to the suspension public transport facilities, migrants started walking towards their home state on foot. Subsequently, buses and Shramik special trains were permitted by the central government subject to coordination between states.[3],[4] Between May 1 and June 3, more than 58 lakh migrants were transported through specially operated trains and 41 lakh were transported by road. Measures taken by the government to aid migrants include-
Transport: On March 28, the central government authorised states to use the State Disaster Response Fund to provide accommodation to traveling migrants. States were advised to set up relief camps along highways with medical facilities to ensure people stay in these camps while the lockdown is in place.
In an order issued on April 29, the Ministry of Home Affairs allowed states to co-ordinate individually to transport migrants using buses. On May 1, the Indian Railways resumed passenger movement (for the first time since March 22) with Shramik Special trains to facilitate movement of migrants stranded outside their home state. Between May 1 and June 3, Indian Railways operated 4,197 Shramik trains transporting more than 58 lakh migrants. Top states from where Shramik trains originated are Gujarat and Maharashtra and states where the trains terminated are Uttar Pradesh and Bihar.[5] Note that these trends largely correspond to the migration patterns seen in the 2011 census data.
Food distribution: On April 1, the Ministry of Health and Family Affairs directed state governments to operate relief camps for migrant workers with arrangements for food, sanitation and medical services. On May 14, under the second tranche of the Aatma Nirbhar Bharat Abhiyaan, the Finance Minister announced that free food grains would be provided to migrant workers who do not have a ration card for two months. The measure is expected to benefit eight crore migrant workers and their families. The Finance Minister also announced that One Nation One Ration card will be implemented by March 2021, to provide portable benefits under the PDS. This will allow access to ration from any Fair Price Shop in India.
Housing: The Aatma Nirbhar Bharat Abhiyaan also launched a scheme for Affordable Rental Housing Complexes for Migrant Workers and Urban Poor to provide affordable rental housing units under PMAY. The scheme proposes to use existing housing stock under the Jawaharlal Nehru National Urban Housing Mission (JnNURM) as well as incentivise public and private agencies to construct new affordable units for rent. Further, additional funds have been allocated for the credit linked subsidy scheme under PMAY for middle income group.
Financial aid: Some state governments (like Bihar, Rajasthan and Madhya Pradesh) announced one-time cash transfers for returning migrant workers. UP government announced the provision of maintenance allowance of Rs 1,000 for returning migrants who are required to quarantine.
Directions by the Supreme Court
The Supreme Court reviewed the situation of migrant labourers stranded in different parts of the country, noting inadequacies and lapses in government response to the situation.
- On May 26, the Court issued an order to the central and state governments to submit a response detailing all measures taken by the respective governments for migrant labourers.
- On May 28, the Court provided interim directions to the central and state/UT governments for ensuring relief to the migrant workers: i) no train or bus fare should be charged to migrant workers, ii) free food should be provided to stranded migrants by the concerned State/UT government and this information should be publicised, iii) States should simplify and speed-up the process of registration of migrants for transport and those registered should be provided transportation at the earliest and iv) the state receiving migrants should provide last-mile transport, health screening and other facilities free of cost.
- Reiterating their earlier directions, on June 5 (full order issued on June 9), the Supreme Court further directed the Central and state/UT governments to ensure: i) transportation of all stranded workers wanting to return to their native place is completed within 15 days, ii) identification of migrant workers is immediately completed and the process of migrant registration be decentralised to police stations and local authorities, iii) records of returning migrant labourers are kept including details about place of earlier employment and nature of their skills, and iv) counselling centres are set-up at the block level to provide information about central and state government schemes and other avenues of employment. The Court also directed the state/UT governments to consider withdrawal of prosecution/complaints under Section 51 of Disaster Management Act filed against migrant labourers who allegedly violated lockdown orders.
[1] Census, 2011, Office of the Registrar General & Census Commissioner, Ministry of Home Affairs.
[2] Report of Working Group on Migration, Ministry of Housing and Urban Poverty Alleviation, January 2017, http://mohua.gov.in/upload/uploadfiles/files/1566.pdf.
[3] Order No. 40-3/2020-DM-I (A), Ministry of Home Affairs, April 29, 2020, https://prsindia.org/files/covid19/notifications/4233.IND_Movement_of_Persons_April_29.pdf.
[4] Order No. 40-3/2020-DM-I (A), Ministry of Home Affairs, May 1, 2020, https://prsindia.org/files/covid19/notifications/IND_Special_Trains_May_1.jpeg.
[5] “Indian Railways operationalizes 4197 “Shramik Special” trains till 3rd June, 2020 (0900hrs) across the country and transports more than 58 lacs passengers to their home states through “Shramik Special” trains since May 1”, Press Information Bureau, Ministry of Railways, June 3, 2020, https://pib.gov.in/PressReleseDetail.aspx?PRID=1629043.
The central government has sought to revise the definition of MSMEs in the Act on two earlier occasions. The government introduced the MSME Development (Amendment) Bill, 2015 which proposed to increase the investment limits for manufacturing and services MSMEs.[3] This Bill was withdrawn in July 2018 and another Bill was introduced. The MSME Development (Amendment) Bill, 2018 proposed to: (i) use annual turnover as criteria instead of investment for classification of MSMEs, (ii) remove the distinction between manufacturing and services, and (iii) provide the central government with the power to revise the turnover limits, through a notification.[4] The 2018 Bill lapsed with the dissolution of 16th Lok Sabha.
Global trends in criteria for the classification of MSMEs
While India will now be using investment and annual turnover as the criteria to classify MSMEs, globally, the number of employees is the most widely used criteria for classifying MSMEs. The Reserve Bank of India's Expert Committee on MSMEs (2019) cited a study by the International Finance Corporation in 2014 which analysed 267 definitions used by different institutions in 155 countries.[5],[6] According to the study, countries used a combination of criteria to classify MSMEs. 92% of the definitions used the number of employees as one of the criteria. Other frequently used criteria were: (i) turnover (49%), and (ii) value of assets (36%). 11% of the analysed definitions used alternative criteria such as: (i) loan size, (ii) years of experience, and (iii) initial investment.
Evaluation of common criteria used to define MSMEs
Investment: The 2006 Act uses investment in plant, machinery, and equipment to classify MSMEs. Some of the issues with the investment criteria include:
- The investment criteria require physical verification and have associated cost overheads.[7]
- The investment limits may need to be revised from time-to-time due to the impact of inflation. The Standing Committee on Industry (2018) had observed that limits set under the Act in 2006 have become irrelevant due to the impact of inflation.7
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Due to their informal and small scale of operations, firms often do not maintain proper books of accounts and hence find it difficult to get classified as MSMEs as per the current definition.5
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The investment-based classification incentivises promoters to keep the investment size restricted to retain the benefits associated with the micro or small category.7
Turnover: The 2018 Bill sought to replace the investment criteria with annual turnover as the sole criteria for the classification of MSMEs. The Standing Committee agreed with the proposal under the Bill to use annual turnover as the criteria instead of investment.7 It observed that this could overcome some of the shortcomings of classification based on investment. While turnover based criteria will also require verification, the Committee noted that the GST Network (GSTN) data can act as a reliable source of information for this purpose. However, it also observed that:7
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With turnover as a criterion for classification, corporates may misuse the incentives meant for MSMEs. For instance, there is a possibility that a multi-national company may produce a large quantity of products worth a high turnover and then market it through various subsidiaries registered as Micro or Small enterprise under GSTN.
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The turnover of some enterprises may fluctuate depending on their business, which may result in the change of classification of the enterprise during a year.
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The Committee noted that there is a wide gap in turnover limits. For instance, an enterprise with a turnover of Rs 6 crore and an enterprise with a turnover of Rs 75 crore (as proposed in 2018 Bill) would both be classified as a small enterprise, which seems incongruous.
The Expert Committee (RBI) also recommended using annual turnover as the criteria for classification instead of investment.5 It observed that turnover based definition would be transparent, progressive, and easier to implement through the GSTN. It also recommended that the power to change the definition of MSMEs should be delegated to the executive as it will help in responding to changing economic scenarios.
Number of employees: The Standing Committee had highlighted that in a labour-intensive country like India, appropriate focus is required on employment generation and MSME sector is the most suitable platform for this.7 It had recommended that the central government should assess the number of persons employed in the MSME sector and also consider employment as a criterion while classifying MSMEs. However, the Expert Committee (RBI) stated that while the employment-based definition is an additional feature preferred in some countries, the definition would pose challenges in implementation.5 According to the Ministry of MSME, employment as a criterion has problems due to: (i) factors such as seasonality and informal nature of engagement, (ii) similar to investment criteria, this would also require physical verification and has associated cost overheads.7
Number of MSMEs
According to the National Sample Survey (2015-16), there were around 6.34 crore MSMEs in the country. The micro sector with 6.3 crore enterprises accounted for more than 99% of the total estimated number of MSMEs. The small and medium sectors accounted for only 0.52% and 0.01% of the estimated number of enterprises, respectively. Another dataset to understand the distribution of MSMEs is Udyog Aadhaar, a unique identity provided by the Unique Identification Authority of India (UIDAI) to MSME enterprises.[8] Udyog Aadhaar registration is based on self-declaration by enterprises. Between September 2015 and June 2020, 98.6 lakh enterprises have registered with UIDAI. According to this dataset, micro, small, and medium enterprises comprise 87.7%, 11.8% and 0.5% of the MSME sector respectively.
Employment in the MSME sector
The MSME sector employed nearly 11.1 crore people in 2015-16. The sector was the second largest employer after the agriculture sector. The highest number of employed persons were engaged in trade activity (35%), followed by persons engaged in manufacturing (32%).
Implications of change in the definition of MSMEs
The change in the definition of MSMEs may result in many enterprises which are currently classified as Small enterprises be reclassified as Micro, and those classified as Medium enterprises be reclassified as Small. Further, there may be many enterprises which are not currently classified as MSMEs, which may fall under the MSME classification as per the new definition. Such enterprises will also now benefit from the schemes related to MSMEs. The Ministry of MSME runs various schemes to provide for: (i) flow of credit to MSMEs, (ii) support for technology upgrade and modernisation, (iii) entrepreneurship and skill development, and (iv) cluster-wise measures to promote capacity-building and empowerment of MSME units. For instance, under the Credit Guarantee Fund Scheme for Micro and Small Enterprises, a credit guarantee cover of up to 75% of the credit is provided to micro and small enterprises.[9] Thus, the re-classification may require a significant increase in budgetary allocation for the MSME sector.
Other announcements related to MSMEs in the aftermath of COVID-19
MSME sector accounted for nearly 33.4% of the total manufacturing output in 2017-18.[10] During the same year, its share in the country’s total exports was around 49%. Between 2015 and 2017, the contribution of the sector in GDP has been around 30%. Due to the national lockdown induced by COVID-19, businesses including MSMEs have been badly hit. To provide immediate relief to the MSME sector, the government announced several measures in May 2020.[11] These include: (i) collateral-free loans for MSMEs with up to Rs 25 crore outstanding and up to Rs 100 crore turnover, (ii) Rs 20,000 crore as subordinate debt for stressed MSMEs, and (iii) Rs 50,000 crore of capital infusion into MSMEs. These measures have also been approved by the Union Cabinet.[12]
For more details on the announcements made under the Aatma Nirbhar Bharat Abhiyan, see here.
[1] “Cabinet approves Upward revision of MSME definition and modalities/ road map for implementing remaining two Packages for MSMEs (a)Rs 20000 crore package for Distressed MSMEs and (b) Rs 50,000 crore equity infusion through Fund of Funds”, Press Information Bureau, Cabinet Committee on Economic Affairs, June 1, 2020.
[2] The Micro, Small and Medium Enterprises Development Act, 2006, https://samadhaan.msme.gov.in/WriteReadData/DocumentFile/MSMED2006act.pdf.
[3] The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2015, https://www.prsindia.org/sites/default/files/bill_files/MSME_bill%2C_2015_0.pdf.
[4] The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2018, https://www.prsindia.org/sites/default/files/bill_files/The%20Micro%2C%20Small%20and%20Medium%20Enterprises%20Development%20%28Amendment%29%20Bill%2C%202018%20Bill%20Text.pdf.
[5] Report of the Expert Committee on Micro, Small and Medium Enterprises, The Reserve Bank of India, July 2019, https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/MSMES24062019465CF8CB30594AC29A7A010E8A2A034C.PDF.
[6] MSME Country Indicators 2014, International Finance Corporation, December 2014, https://www.smefinanceforum.org/sites/default/files/analysis%20note.pdf.
[7] 294th Report on Micro Small and Medium Enterprises Development (Amendment) Bill 2018, Standing Committee on Industry, Rajya Sabha, December 2018, https://rajyasabha.nic.in/rsnew/Committee_site/Committee_File/ReportFile/17/111/294_2019_3_15.pdf.
[8] Enterprises with Udyog Aadhaar Number, National Portal for Registration of Micro, Small & Medium Enterprises, Ministry of Micro, Small and Medium Enterprises, https://udyogaadhaar.gov.in/UA/Reports/StateBasedReport_R3.aspx.
[9] Credit Guarantee Fund Scheme for Micro and Small Enterprises, Ministry of Micro, Small and Medium Enterprises, http://www.dcmsme.gov.in/schemes/sccrguarn.htm.
[10] Annual Report 2018-19, Ministry of Micro, Small and Medium Enterprises, https://msme.gov.in/sites/default/files/Annualrprt.pdf.
[11] "Finance Minister announce measures for relief and credit support related to businesses, especially MSMEs to support Indian Economy’s fight against COVID-19", Press Information Bureau, Ministry of Finance, May 13, 2020.
[12] "Cabinet approves additional funding of up to Rupees three lakh crore through introduction of Emergency Credit Line Guarantee Scheme (ECLGS)", Press Information Bureau, Ministry of Finance, May 20, 2020.