With the Railways losses in the passenger business jumping more than five times over the decade to `33,000 crore in FY15, or 67% of passenger revenues, it is not surprising the government is trying its best to staunch the haemorrhaging. Apart from the impact on the Railways’ finances—as a result of low profitability, the national carrier has, for instance, reduced expenditure on depreciation reserve fund from `7,775 crore in 2010 to `5,200 crore in FY17—losing `1.67 for every one it earns in the passenger business forces Railways to over-charge on freight and robs it of the flexibility to charge lower rates in the air-conditioned segment where it is losing out to the competition from low-cost airlines. So, from a small fraction of the Railways upper class passenger business in early 2000, the number of domestic air travelers today is more than 50 times the number travelling in AC-1 and six times the number travelling on AC-2. And in the case of freight, the Railways share has fallen to 31% today—the ratio of cost to earnings per km fell from 62% in FY00 to 49% in FY13 for passenger services but rose from 129% to 164% for freight services.
While Railways minister Suresh Prabhu has introduced dynamic pricing in an attempt to fix this and is also trying to get higher fares by introducing new trains like Talgo that offer superior quality services, the results have been limited so far. The Cabinet clearing the setting up of a Railways regulator is supposed to be a bigger step towards fixing the pricing mess, apart from ensuring there is a level playing field for private sector entrants, as and when they are allowed in—so, for instance, it will determine what costs private entrants will have to pay Railways for using common facilities like tracks and also ensure the Railways don’t crowd out private competitors by not giving them access to tracks, etc, when they need them.
The problem with what has been planned, however, is that the body, to be set up though an executive order, will merely be a recommendatory one and it is up to the Railway Board to accept the suggestions. To be sure, having greater power of the type state electricity regulatory commissions (SERCs) have hasn’t always helped with, by and large, SERCs refusing to recommend large enough tariff hikes. But not giving these powers to the Railway regulator means the decision to hike passenger fares remains a political one, subject to all the vagaries that come along with a political dispensation. The argument that a regulator brings in an element of professionalism to the pricing system, and is therefore a step forward is a gross exaggeration since there are several reports that deal with the extent of subsidy—the Railways commercial department either does this already or can be asked to do it. One by Debroy/Desai not just quantifies the FY15 loss of `8,500 crore in the sleeper class in the Mail/Express category of trains, it talks of how at an aggregate level, while buses charge `1.78 per km for AC travel, trains charge a much higher `2.52. It drills down even further and points out that, in the Delhi-Lucknow segment, second-class train fare is `185 versus a staggering `420 by bus; for the air-conditioned class, train journeys cost `1,140 versus `900 for a comparative bus journey. While the government may have been in a hurry to announce the regulator as evidence of reform, it must at the earliest, get Parliament to pass an amended Railway Act to make the body truly powerful.