The recent hike in passenger fares, it is important to keep in mind, were after a gap of five years; given how large the subsidies were, fares should be hiked by a pre-specified amount—say 5% per year—instead of the hikes being episodic.
Bibek Debroy, who heads the prime minister’s economic advisory council, has a fascinating piece (bit.ly/36DH6Gs) on how, the Railways was so compartmentalised in its functioning, while the platforms/toilets/waiting-rooms in a railway station were looked after by the civil engineering department, the lights/lifts/fans/water-coolers are the responsibility of the electrical department; he even talks of the wrangling between various wings on whether hot-cases were a better idea to heat food than microwaves. To that extent, railway minister Piyush Goyal has done well to try to put an end to this departmentalism—and silo-thinking—in the Railways by restructuring the Railway Board. The proof of the pudding, of course, is in the eating, so we will know the plan works when decision-making gets faster. But Goyal needs to keep in mind that, even if the Railway Board revamp delivers over time, he cannot afford to go slow on slashing the huge passenger subsidies.
Indeed, when he was power minister, Goyal didn’t emphasise as much on raising power tariffs as he did on cutting ATC losses, and that is the reason why the power reforms didn’t quite work as planned; indeed, even if ATC losses had come down, the huge subsidies on household electricity usage are cross-subsidised by commercial/industrial users and that makes them uncompetitive.
The recent hike in passenger fares, it is important to keep in mind, were after a gap of five years; given how large the subsidies were, fares should be hiked by a pre-specified amount—say 5% per year—instead of the hikes being episodic. Over the years, the subsidy burden has been increasing, and little has been done to address this and, as a result, operational expenses have increased at a faster rate than revenues; the operating ratio has deteriorated from 90.46% in 2008-09 to 98.44% in 2017-18. While Railways spent Rs 97.3 to earn Rs 100 in 2018-19—an improvement from 2017-18—this was only due to advance payments of Rs 13,000 crore from Concor and NTPC. A CAG report last year pointed out that, had it not been for exceptional assistance like the one from NTPC, the operating ratio would have been 102.66% in 2017-18. While the current hike may help add another few hundred crore to the Railways kitty, this is far from enough.
More important, the current hike excludes the suburban sector, which accounts for a tenth of total subsidy, and has less than half the average revenue per user per km than the non-suburban travel. Debroy had, in 2015, estimated that losses on passenger traffic rose from Rs 25,314 crore in FY12 to Rs 35,298 crore in FY15, the CAG estimates this rose to Rs 39,956 crore in FY17, and all of this was made up by hiking freight rates so much that it is cheaper to move lots of goods via road; that is why the Railways share of freight falls every year. The fact that the dedicated freight corridors will, though, help increase freight earnings, since the Railways can move it faster and also have double-decker containers. On the passenger side, while Goyal has to keep cutting passenger subsidies, the introduction of new trains—including private ones—where higher tariffs can be charged because of their superior amenities will also help.