Fare hikes through back door to bail out Railways

Written by Praveen Kumar Singh | Praveen Kumar Singh | Nirbhay Kumar | New Delhi | Updated: Oct 31 2011, 05:42am hrs
Caught on the fast track to financial ruin thanks to its reluctance to hike passenger fares in the last eight years, Indian Railways is finally considering the inevitable: A dynamic fare pricing model to nudge fares up when costs rise. The model, currently in use for freight operations, has enabled Railways to raise freight rates over four times in a single year.

As per the proposal, passenger fares will have three components; namely base fare, fuel surcharge and station usage charge. Fuel surcharge and station fee will move in tandem with operational costs, while base fare will be seldom tinkered with.

The national transporter is scraping the bottom of its cash reserves and has pegged hopes on finance ministry doles for its development plans. Its recent request for a R2,100-crore bridge loan was rejected.

The Railways has paid lower dividends to the government in the last two years, arguing its financial position deteriorated following a Rs 55,000-crore payment to employees following the Sixth Pay Commission awards.

Until now, we cannot change passenger fares even though the dynamics of business keep changing. So, we are considering a proposal to institutionalise a model of dynamic pricing for travellers so that we can keep up with business requirements, a railway ministry official told FE requesting anonymity, as the model is still on the drawing board.

In the absence of political will to raise passenger fares, Railway Board discussions in this direction have not been fruitful, even as cost of fuel and electricity keep climbing. Freight operations have been the saving grace, accounting for more than 66% of earnings, since the Railways has the leeway to charge more when costs go up.

Effective October 15, Railways increased development surcharge and busy season surcharge to earn an extra Rs 1,500 crore in the current financial year. It also decided to continue levying a terminal charge of up to Rs 45 per tonne on bulk cargo.

Railways earned Rs 48,947 crore during April-September 2011. Freight contributed Rs 32,439 crore while passenger sector accounted for Rs 14,018 crore. The balance was sundry earnings.

However, launching the dynamic pricing model may be easier said than done, since Trinamool Congress's Mamata Banerjee (whose nominee Dinesh Trivedi heads the Railway ministry) is against raising fares. Officials indicate Banerjee opposed even the recent increase in freight surcharge, which has the potential to spark inflation.

Railways plans to start fare hikes the easier way, rounding off of passenger fares when possible. For example, a train ticket from New Delhi to Amritsar in Swarna Shatabdi Express costs Rs 1,145, which could be rounded off to Rs 1,150. Railways hopes to earn Rs 1,500 crore per year through this measure.

Feedback Infrastructure Services managing director (transport) Pravesh Minocha said: Railways is trying to find ways and means of restructuring passenger fares in a way that tariff changes in proportion to costs, without necessarily affecting the lower segment of travellers.