Railway minister Suresh Prabhu may be reluctant to hike passenger fares, especially in the sleeper/ordinary class, but an analysis by NITI Aayog member Bibek Debroy and OSD Kishore Desai shows he can raise fares in this class by 1.5-2 times and still keep passenger welfare unchanged. Debroy/Desai break up the FY15 losses of R33,000 crore into that in various classes and find the largest losses of around R19,000 crore took place in the second-class category, followed by R9,000 crore in the sleeper class. AC trains, where Prabhu has just started a surge-pricing strategy, by contrast, roughly break even — while the AC tier-II made R496 crore of losses in FY15, the tier-III made a profit of R882 crore.
It is when this is disaggregated into per-kilometre fares and compared with bus fares that the real lessons emerge. The average fare in the air conditioned class turns out to be R2.52 per passenger per kilometre versus R1.78 for a comparable bus journey, suggesting that for shorter distances, the railways may lose traffic to buses. But for the non-AC and second-class/ordinary classes, buses are 1.6-2 times as expensive — given the railways are more comfortable than buses, passenger welfare will rise even with significant fare hikes.