An Insight to the Rail Fare Hike

By Arjun Talwar

Edited by Liz Maria Kuriakose, Associate Editor, The Indian Economist

“Achhe Din aa gaye!” exclaimed the opposition leaders and the BJP critics against the government’s design to hike railway prices. This sarcastic remark was made when the newly elected government announced a hike in railway fares by 14.2% and 6.5% for passenger charges and freight charges respectively. This decision has raised eyebrows as it came just ahead of the Railway Budget. Common public has denounced this price-hike and suspects the completion of BJP’s long shot election promises.

The think-tank of the nation has raised some worthy questions. Is this unpopular decision necessary for good days to come? Can Modi’s ‘bitter medicine’ cure India’s tumbling economy? To answer these questions we have to deeply introspect the cause and effects of this hike.

For decades, railways have run on subsidies and huge losses. The Indian Railways reportedly faces a loss of Rs.30 crore every day. For the financial year 2012-13, railways incurred a loss of Rs. 24,915 crore. All this money comes out of the tax payer’s pockets and devoid the nation from planning and implementing farsighted policies. It was a long time since any stern action was taken to check the excessive rebate given to railways in the name of ‘upliftment and equality’ policies.

The operating and maintenance costs of the railways have increased multiple times in the recent years. But the fares were not adjusted accordingly. It is expected that the working cost of railways will shoot-up to its all time high at Rs 1,44,199 crore, this fiscal year. The increase in cost is in lieu of the increased rates of fuel and staff compensation. These two components take away 70 percent of the revenue from railways. Fuel adjustment component (i.e. adjustment in fares according to change in fuel prices) alone caused an increase of 4.2% and 1.6% in the total hike in the passenger and freight charges respectively. Also, the railways pension bill will soar up by Rs.7000 crore to touch the Rs.27000 crore mark. The operating ratio of railways stands at a miserable 90.8 per cent, as projected for this year.

However with the proposed price hike, Railways is expected to earn additional revenue worth Rs.8000 crore this fiscal year. The operating ratio is also expected to improve at 89.2%.

Before the commencement of the FY 2012-13, about 350 railway projects were at halt, mostly due to the non-availability of funds. Railway Ministers promise new lines and better coaches but bluntly slips away when it comes to the allotment of finance for those projects. Such earning will fuel the completion of the railway’s long awaited projects.

 Moreover the surplus can be used to revamp the railway experience. Passengers who constantly struggle with mismanagement, lack of cleanliness, poor food quality and rail accidents are willing to pay extra for better services. PM Modi’s election campaign manifested the introduction of high speed bullet trains across the nation. Price hike is seen as an early step in that direction.

Both, economists and the corporate world, have welcomed this move. However, a part of the society believes that such a hike in price is against the interests of the economically marginalized sections. Expensive travelling and freight costs will demolish small businesses. This will also affect the people who have to travel everyday to work. Rail price rise is expected to bring economy at a standstill for many, as feared by the common man.

This perception is nothing but paranoia. Inflation due to freight price hike is estimated to be quite moderate. Passengers would pay extra money for the improved services (at least as promised by the government). Moreover special monthly cards at subsidized rates could be issued to the Economically Weaker Section (EWS) and small businesses to help them. Giving direct travelling subsidies to people from EWS is another option to promote equality.

The UPA government gave a haunted experience to our economy by providing illegitimate subsidies and leaving the rail fares untouched under pressure from its allies. Hence, Modi’s perfect majority in the Parliament is expected to prevent privation of the Railways. Some tough steps are necessary to revolutionize the railways. The government should do away with the unjustified subsidies and bring a competent model for the railways to serve the nation better.