Fare hike won’t improve railways’ financial health

Here are some reasons why the hike in passenger fares will not improve the railways’ financial or operational performance
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First Published: Tue, Jan 15 2013. 01 08 AM IST
Photo: Mint
Photo: Mint
The present Rail Bhawan mandarins must be incredibly lucky. How else can they get such generous ministers like Dinesh Trivedi and Pawan Kumar Bansal. While Trivedi ordered a jaw-dropping 27% increase in freight tariff, Bansal agreed for a hitherto unheard of hefty hike in passenger fares—all in one year. No matter what their achievement in freight and passenger volume targets, Indian Railways is now assured of a seven points drop in operating ratio (expenses to earnings ratio), which will nosedive below 85% in 2013-14.
While the steep fare hike may give much-needed relief towards balancing the books of the railways, one cannot help but feel sorry for the jostling crowds in front of the limited unreserved coaches in mail express trains—usually only two or three coaches in every train. The desperate crowd cruelly push away women, children and the old, to grab a seat in the packed unreserved coach. Having witnessed this spectacle—we don’t even dare to think of hiking the tariff for this suffering class, that too after denying them even standing space while travelling. This year, even these unreserved coach passengers (migrant workers, last minute urgent travellers, students, etc.,) are slapped with a huge 20% hike. This hike also means, the longer the journey, the more you pay, partially tempering the universally adopted telescopic rate advantage.
Looking beyond the fare hike, the question that arises is, will this rich haul help the railways improve their financial or operational or developmental (including safety) performance in the coming years, if the revisions are consistently repeated? The answer is no. The reasons are many.
The railways will soon have to face the dilemma of inadequate growth in volumes. Take the passenger business. As much as 74% of total passenger fare-box flows are from mail and express long-distance (over 150km) trains. However, the country’s 1.2 billion population makes only 1.2 billion long distance journeys annually. Hardly one trip a year per capita. Not surprising, because such journeys are unaffordable for the 800 million poor Indians. Unless income levels improve and massive new job opportunities are created, the comfort of frequent and recurring hefty fare revision as a source of resources to finance development of Indian Railways will not be available.
Even the 400 million affluent and middle class (I go by management consultant Rama Bijapurkar’s count) makes only 115 million trips by rail and 50 million trips by air as of now. Rest of their journeys are by cars and buses. Car ownership will only grow faster as income levels increase. The price-sensitive nature of Indian Railways’ passenger business will become an automatic cap on raising resources through frequent passenger fare hikes, the way it has been done this year for freight traffic. The unfair hike in unreserved class mail and express fares will eat into the volumes carried in this class, eroding the base of unreserved travellers, who contribute 27% of total passenger revenues. Hike in upper classes will only see a dramatic shift towards air travel and the aggressively competitive luxury buses.
How then can the railways survive as a sustainable public transport system in India? Its survival depends primarily on larger freight volumes of social goods like coal for power plants, cement and steel plants, raw materials for steel plants, mineral ores, bulk chemicals, finished steel, food grains, fertilizers etc on the one hand and manufactured products, both domestic and for export, on the other. Surprisingly, many railwaymen blame their own rail system for exaggerated claims of capacity constraints, while suppressing the fact that India does not have enough freight volumes to offer railways.
Indian Railways is barely surviving on bulk social goods, but of late it is more a victim of the Indian economy’s sudden decelerated pace of growth. Though India has a comparable population with China, India consumes less than 600 million tonnes of coal as against 2.5 billion tonnes in China. Thus, Indian Railways gets only 450 million tonnes of coal to carry, against nearly 2 billion tonnes carried by Chinese railways. Steel production too is only one-fifth of what China produces. Correspondingly, iron ore requirements too vary hugely compared with China.
Given the inelastic nature of the bulk cargo carried by railways, ministers like Trivedi found it expedient to go in for unusually huge freight hikes, even at the risk of eroding market share. But this route has its own limitations. The spiralling coal and ore tariffs make for non-competitiveness of India’s manufacturing sector. Thus, unless railways are offered more bulk cargo, the route of frequent freight tariff revision will eventually plateau.
Another aspect of this fare revision is the timing. Revision of fares as a part of the railway budget makes it imperative that the railway minister concurrently state the takeaways that passengers may expect, commensurate with fare revision. An off-budget announcement carries no such obligation. Hopefully, the minister will heed the expectations of the passengers and ensure improvement in travel comfort, quality, reliability and punctuality of trains.
R. Sivadasan is former financial commissioner, ministry of railways.
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First Published: Tue, Jan 15 2013. 01 08 AM IST
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