The Railways history of granting large passenger concessions is best seen from Lal Bahadur Shastri’s statement as Railway minister, way back in 1955-56, that the “liberal policy of giving concessions” has resulted in “the average amount earned per passenger during 1953-54 (falling) from 5.22 pies to 5.17 pies per mile”. What may have looked like a small concession then has gone beyond tipping point today since, at R33,000 crore in 2014-15, passenger subsidies amount to 67% of total earnings from this segment. To that extent, finance minister Arun Jaitley has done well to say that passenger fares will have to be hiked—Jaitley’s statements are particularly relevant since this is the first year in which there will be no separate Railway budget, it will be merged with the Union budget.
Naturally, those who have to pay higher fare will protest, but Jaitley will do well to draw upon a recent report by NITI Aayog member Bibek Debroy and officer on special duty Kishore Desai on the extent of the social obligations and where the ideal place is to hike fare. For one, as the analysis points out, the Railways are already uncompetitive in the upper classes, so raising fare here will only ensure traffic moves away—indeed a report by a parliamentary panel had talked of how, with the high Railway fare in the AC segments, the national carrier was already ceding space to low-cost airlines in a big way.
According to Debroy/Desai, while Railways lost R8,500 crore in FY15 in the sleeper class in the Mail/Express category of trains, it lost R7,600 crore in the second-class seats; in the second-class of ordinary trains, the loss was as high as R11,100 crore. At an aggregate level, while buses charge R1.78 per km for AC travel, trains charge a much higher R2.52. In the case of the sleeper class, however, the position is reversed with buses charging 92 paise per km as compared to 57 paise for the Railways in the sleeper class; the equation gets even more skewed in the second-class category where buses cost 75 paise per km versus 38 paise in the Railways. Given that bus journeys are not as comfortable over longer distances, this means the Railways can even double fare in the second-class categories while leaving consumer welfare untouched in the broad sense. In the Delhi-Lucknow segment, Debroy-Desai find the second-class train fare is R185 versus a staggering R420 by bus; for a Delhi-Chandigarh journey, the comparative numbers are R110 and R200. For the air-conditioned class, train journeys are more expensive, costing R1,140 for Delhi-Lucknow versus R900 for a comparative bus journey. Whether Jaitley will choose to raise fare dramatically is not clear, but there is plenty of scope for him to do so. Certainly, a stiff hike can be initiated—introducing new trains like the Talgo and charging more for them is also a solution, but a limited one—with the rest of the process to be carried forward by the proposed regulator.