Indian Economy and the Railway Fare Hike By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran


We Indians are the most optimistic people with a very high irrational expectation. We think that a public sector undertaking company can continue to do badly as long as the deficit financing is possible. Look at the case of the railways which is incurring losses in many crores every day and the earlier UPA government allowed this to continue. Finally, Modi government decided to bite the bullet and Jacked up the passenger train fares by 14.2 percent and the freight rate by 6.8 percent. The season ticket holders using the suburban trains have been asked to pay nearly twice the amount for their monthly season tickets.

Why did this have to happen? The new government was expected to bring down the cost of living including travel. Those who believed this are completely out of touch with reality. Our railways are in a big financial stress. They are strapped of cash. Their effort to use the public-private partnership to raise revenue for them has not worked well. The question that should be asked is how to run the trains without adequate financial support. Mr. Chidambaram’s budget provided 30000 crores in the vote on account budget. Obviously this is not enough. Why? Nearly 70 percent of the budget is already earmarked for salaries. Further the measure of operating expenses as a percentage of revenue has gone up to 90.8 percent of revenues as against the expected 89.8 percent in FY 14-15. This is primarily due to the increased tariff on electricity.

When the hike was announced, the opposition parties raised an alarm in a chorus. They know well, that the railways require huge investments outlay to upgrade the signaling system and to strengthen the railway tracks.

What then is the lesson for a common man?

  1. There is no free lunch. In order for the trains to run we need to increase the revenue through higher ticket prices and freight rates.
  2. If the increased cost of running the trains is not reflected now, it will have to be done later. At that point in time the travel cost will have to move up significantly higher.
  3. Don’t blame the present government. They are only trying to bring the reality home.

Even after the increase, the Indian railway travel costs are miniscule by the global standards. It has one of the biggest networks in the world and we citizens enjoy our travel immensely and hence the volume. Let us not become peevish and in fact, we should be willing to pay the price which is required. If sufficient funds are not allotted, there will be a major compromise in the security and the quality of service. Let us accept the price hike without complaining.

There are certain things the railways can do to enhance its revenue. They can for example add a compartment with 50 to 100 seats to each important train and offer the seats in auction. For example, an airline ticket becomes very costly, if the ticket is bought near to the travel date. The highest bidder should be allotted the seats. To improve the utilization of the compartments, they can develop a turnaround model by minimizing the travel time between destinations. This will increase the number of trips the rolling stock (compartments) can be used during the financial year and hence higher revenue. The airlines in India are already doing this.

The basic motto in all pricing activities is at least to recover the operating cost by periodically adjusting the fares. The price of ticket closer to travel should become more expensive and market driven. Also there must be an end to all subsidies and the railways must build a sinking fund to replenish the trains and for maintenance of tracks. They can issue bonds, name it infrastructure railway bonds and use the proceeds for improving the productivity and efficiency of services. Some public-private sector partnership will go a long way in this regard. The railways can also bring in FDI.

 

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2 Responses to Indian Economy and the Railway Fare Hike By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran

  1. Sairam S says:

    Article written by two PHDs and l see lots of typos!!! So much for the PHD ah?

  2. Gaurav Chauhan says:

    Sir I appreciate the need of fare increase and the steps taken in accordance. What worries me is the overall increase in prices due to increase in railway transportation costs. Can you throw light on the scale of this impact, how do we gauge it and how severe Will it be. Seeking for your reply this time as I didn’t get one the last time.
    Regards

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