Given that basic railway fares haven’t been hiked for a decade, and losses in the passenger segment have risen four-fold in the last eight years to a projected R25,000 crore in FY13, the 10-12% hike in fares announced by railway minister Pawan Kumar Bansal have to be welcomed as yet another sign of the government shaking off its policy paralysis. What makes the fare hike more noteworthy is that, when Mamata Banerjee was a valuable ally of the UPA, Dinesh Trivedi got sacked for proposing smaller hikes than those announced by Bansal on Wednesday. But the problem with putting off action for a decade, during which time input costs grew at 7-8% per annum, is that whatever action gets taken means little, unless there is an assurance of it being part of a continuing process—and there is no such assurance from railway minister Bansal.
How tiny the hike is can best be seen from the fact that while it will fetch the Railways Rs 4,000 crore or so in a full year, passenger losses are likely to be Rs 25,000 crore in FY13. Given that these were Rs 19,964 crore in FY11, this suggests the R4,000 crore hike may just be enough to stem the rising annual losses. That too depends on what happens to diesel prices. One proposal the petroleum ministry is pushing is to decontrol diesel prices for bulk consumers who account for around a fifth of consumption in the country. While dual pricing of any fuel is not the most sensible policy option because of the arbitrage it creates for theft, it has important implications for the Railways. Since the Railways spend around R13,000 per annum on fuel, a 27% hike in diesel prices (that’s what a decontrol will mean, should it be accepted) will imply an extra fuel cost of R3,600 crore. That is, the bulk of the hike in passenger fares could be eaten up by just the hike in diesel prices were the Cabinet to approve this.
But even if you leave that aside, keep in mind what is being proposed is a R4,000 crore hike