Railways needs formula to determine passenger fares, must hike periodically

Indian Railways
Representational image | iStock

The Indian Railways (IR) expects to make about ₹200 crore incrementally each month through a nominal increase in fares, effective from January 1. It is another matter that all indications point to a revenue shortfall this fiscal of anywhere near ₹25,000 crore or nearly ₹1,000 crore a month and this fare hike would do little to help the national transporter’s finances in any significant manner. As per IR’s own statistics till November this year, it reported falling freight loading and declining passenger numbers and traffic receipts were well below the target set out at the beginning of the year.

Railways minister Piyush Goyal told Lok Sabha in this written reply last month that a 14% increase in revenue target over 2018-19 is expected this fiscal, at ₹21,6575 crore (₹190,507 crore). But IR’s own numbers show the insurmountable difficulty in achieving such high revenue growth.

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Year on year freight loading has been down by almost 10 million tonnes between April and November FY19 but if one were to compare it to the target for 2019-20, the shortfall is over 40 million tonnes. The year on year drop in freight earnings is well over ₹3,000 crore while the variation from Budget target is a whopping ₹17,700 crore. In the passenger segment, the number of passengers taking a train have fallen by over 68 million year on year but compared to the budget target, the decline in passengers is over 170 million.

The overall shortfall in traffic receipts is about ₹400 crore year on year but from the Budget targets, the difference is already nearly ₹22,000 crore. Also, working expenses of IR have risen by nearly ₹4,400 crore during this eight-month period vis-a-vis Budget targets.

While the fare hike may not mean much in terms of IR’s overall financial sustainability, it will likely reduce the loss the transporter incurs every year in ferrying passengers since tickets in most classes of train travel continue to be priced below cost. This loss is known as IR’s social service obligation. In the same LS reply quoted above, Goyal has said the IR incurred a net social service obligation cost of ₹31,128 crore in 2017-18 by pricing passenger services below cost.

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The social obligation cost has been escalating year on year; it was ₹25,561 crore in 2016-17 and ₹22,262 crore in 2015-16. The IR cross subsidises the passenger business through its freight earnings but with freight loading also suffering this fiscal, the math has been skewed more than in previous years.

Now, why has the IR announced such a nominal fare hike if it is in such dire straits? Any increase in passenger fares by the national transporter has nearly always been an emotive issue, with deep political ramifications. In 2014-15 too, the first term NDA government had announced a nearly 14% across the board hike in passenger fares but then had to partially roll it back after public outcry.

In the rollback, the government exempted suburban passengers from increased fares.

This time, the IR has hiked base fares by one to four paise per km but the catch is that the increased fare is applicable to only every third passenger. There is no increase in fares for the suburban segment – which accounts for almost 56% of total passengers – as well as for season ticket holders. For passengers traveling in ordinary non-AC classes, the hike is just a paise per km; it is two paise per km for mail/express non-AC classes and four paise per km for AC passengers.

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So fares of Rajdhani, Shatabdi, Duronto, Vande Bharat, Tejas, Humsafar, Mahamana, Gatiman, Antyodaya, Garib Rath, Jan Shatabdi, Rajya Rani, Yuva Expresses, Suvidha and special trains on special charges, AC MEMU (non-suburban), AC DEMU (non-suburban) stand revised. The fare hike is nominal at best, since a journey between Delhi and Kolkata on the Rajdhani in AC class would cost only about Rs 60 more.

Rajaj Meshram, Partner at EY LLP India, says, “Passenger fare hike by the Railways should be as per a pre-determined formula and should be a gradual, regular feature. This way, cost escalation can be dealt with and the passengers will also not feel the pinch.”

Will the IR gather courage to increase fares periodically instead of making it a once-in-years phenomenon?

A former Railway Board chairman said the IR had no option but to hike passenger fares but it had been wise to hike fares by a small quantum, there was no room for a large jump.  “Fares cannot be increased by 20-25% in one go. As for revenue generation shortfall, multiple steps need to be taken to bridge the gap between earnings and expenditure, merely hiking passenger fares will not help”.

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The Opposition reacted along expected lines, clubbing the ₹19 increase in LPG cylinder prices with passenger fares and terming these hikes as a New Year gift of the Modi government.

Congress spokesperson Randeep Singh Surjewala included the proposed levy of a user development fee by the IR on some railway stations to decry the raise in passenger fares. He also mentioned the flexi-fare scheme of the IR and its bid to start private train operations.

CPI(M)’s Sitaram Yechury termed the prices hikes as Modi government’s attacks on people’s livelihoods.

A Railways expert said that the oft repeated argument, linking the perceived lack of development and modernisation of IR with any hike in passenger fares, was a flawed one, since the IR network continued to suffer congestion as passenger demand continued to rise. So should the IR be raising fares periodically even if it fails to significantly improve services? Bibek DebRoy, Chairman of the PM’s Economic Advisory Committee and the architect of two reports on overhauling the Indian Railways, has supported the efforts by the Modi government to modernise and restructure the IR.

He has mentioned initiatives like giving away operation of some trains to private players, restructuring of the Railway Board, doing away with a separate Rail Budget and eventual establishment of a Rail Regulator as progressive steps.

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