New Delhi: Railway minister Pawan Kumar Bansal announced an across-the-board increase in passenger fares, including sleeper class, for the first time in 10 years, while not ruling out an increase in freight rates.
By effecting the fare increase ahead of the budget, the Congress-led United Progressive Alliance (UPA) has mitigated the political fallout of the decision. At the same time, the move has stoked expectations that the UPA is prepared to push through tough policy decisions; a proposal to initiate rationalization of fuel subsidies by increasing prices of diesel is presently under consideration.
The fares have been raised by between 2 paise and 10 paise per km across classes and will become effective from midnight of 21 January, almost six weeks ahead of the railway budget for 2013-14.
“The increase in fares is likely to help railways raise Rs.6,600 crore in incremental revenue (over two months). However, there will not be any further increase in passenger fares at the time of the upcoming railway budget,” said Bansal.
The minister did not rule out an increase in freight rates in the budget by declining to take a pointed question at the press conference.
Of the additional revenue that the railways plans to generate, Rs.1,000 crore will come from increase in fares in air-conditioned classes.
The increase comes after the exit of the Trinamool Congress (TMC) from the UPA government. The TMC had the charge of the railway portfolio and was steadfastly opposed to any increase in fares.
The government had to reverse proposed increases in passenger fares in the last budget in March 2012 under pressure from TMC chief Mamata Banerjee. The railway minister, Dinesh Trivedi, at that time had to resign from his post for not heeding Banerjee’s order not to raise fares.
Mukul Roy of the TMC, who succeeded Trivedi as the rail minister, withdrew the proposed hikes in fares for second class suburban and non-suburban, and sleeper class travel. Roy also rolled back increases in the fares for air-conditioned chair car and air-conditioned three-tier classes. Trivedi’s proposal to raise fares for first class, AC two tier and first class AC were retained.
The losses of Indian Railways rose at an average rate of 18% a year from Rs.6,159 crore in 2004-05 to Rs.19,964 crore in 2010-12. According to Bansal, the losses are projected to go up to Rs.25,000 crore in 2012-13.
The minister justified the politically difficult decision on the grounds that input costs rose by an average of 10.6% a year between 2004-05 and 2010-11, while the implementation of the Sixth Pay Commission had added an extra burden of Rs.73,000 crore to the wage bill over the same period.
“We have not been able to achieve this year’s target so far both on the passenger and freight segment due to a general slowdown in the economy. The load has seen a shortage of 13 million tonnes up to December-end. The cross-subsidization for this year stands at Rs.25,000 crore,” Bansal said.
Under cross-subsidization the railways pays for part of the losses incurred by offering passenger fares that are less than the economic cost through increase in freight rates.
“At the moment, railways spends about 50 paise on average in carrying a passenger per km, whereas it earns only 27 paise per passenger per km. So, the gap is large and, as a business entity, it is difficult for railways to carry on without hiking fares. However, while for other categories the fare hike is justified, it is a bit harsh for the unreserved quota of passengers who travel by second class,” said R. Sivadasan, former financial commissioner, ministry of railways.
Bansal said due to the poor performance, the ministry was being forced to reduce the Plan size by nearly one-sixth from the targeted level of Rs.60,100 crore to Rs.51,000 crore in the current fiscal.
On the budgetary suggestion of setting up a tariff regulatory authority to restructure the passenger fares as well as freight charges, Bansal said “extensive discussions are going on with regard to forming the tariff regulatory authority and it is in the final stages”.
The move drew predictable response. While economic analysts welcomed it, political parties condemned the move.
Amrit Pandurangi, senior director at Deloitte Haskins and Sells, said, “The hike in fares was long due, hope they will not roll it back like last time. The railway ministry should also now look at rationalizing the freight rates. I think there is room to reduce freight rates and further increasing the passenger fare rates. If the freight rates continue to be this high, they will soon face a severe financial problem.”
Abhaya Agarwal, partner and leader PPP at Ernst and Young, said the fare hike is reasonable. “People look for better services and not necessarily the lowest fare. Now what the railway budget should focus is on implementation of the earlier project announcements and recommendations of the Sam Pitroda committee,” he added.
Similarly, D.K. Joshi, chief economist at rating agency Crisil Ltd, said the hike is a sign that the government is ready to take more such politically difficult measures. “This shows the government may go ahead with hike in electricity tariffs and petroleum prices, which remain suppressed. It should also make the effort to educate the public on the need for such price hikes,” he said.
The main opposition party, the Bharatiya Janata Party (BJP), issued a statement dubbing the increase as anti-people and asked for a rollback. “If the government felt the need to increase the passenger fares, it should have done through the railway budget and discussed the proposal in Parliament,” BJP leader Rajnath Singh said.
Arguing in a similar vein, TMC chief whip in the Rajya Sabha Derek O’Brien said, “Pre-budget hike is an old and dishonest Congress tactic. When budget comes, it will be window-dressed as people-friendly. Bad habits die hard.”
He added: “So anti-poor, minority status UPA government increases railway fares by 20%. LPG, diesel, train tickets, the Congress inflation engine chugs along.”
PTI contributed to this story.