Noting that the Indian Railways are in the red financially and have not been able to meet the cost of operating passenger and other services, the Comptroller and Auditor General Tuesday said the national transporter should rationalise both passenger and freight tariffs and explore alternate sources of financing.

"There is heavy cross-subsidisation from freight services to passenger services... percentage of freight earnings used to subsidise the losses on passenger and other coaching services ranged between 15.80 percent and 34.32 percent during 2007-08 to 2009-10," said the latest CAG report on railways tabled in parliament Tuesday.

"It is essential that railways increases its market share in bulk commodities where it has an inherent competitive advantage," said the report.

According to the CAG report for 2010-11, the surplus earned by the railways was Rs.1,404.89 crore and the accumulated fund balances were substantially depleted.

This, said the report, indicated a continued poor financial performance by the railways and posed a risk for future sustainability.

The CAG report also expressed concern over the increasing dependency of the railways on the gross budgetary support due to shrinkage of internal resources.

It also suggested that the transporter should wind up unviable and loss-making projects.

"It is important for the railways to review all capital works in progress and take expeditious decision with regard to closure of projects especially unremunerative lines, where there is road connectivity and where the progress with the projects is no longer as valid. There is a need to focus more on viable projects," said the report.