Union budget likely to give rail fare hike a pass

The move would result in the Indian Railways largely relying on government budgetary support and extra-budgetary resources to meet its capital expenditure needs while using freight and passenger traffic earnings to improve its operations.

“The Indian Railways is on course to achieve a 25% growth in freight revenue in FY22 to its highest-ever level of around ₹1.45 trillion. Passenger earnings are also expected to be 10% over FY20 (FY21 passenger revenue fell 75% due to covid-related restrictions on movement) and surpass the budgeted level of ₹61,000 crore. This would do away with any need for an upward revision of rail freight and passenger fares," one of the two people said, requesting anonymity.

Businesses have been complaining of high transportation costs because of a surge in fuel prices. An increase in freight rates at this juncture could further fuel inflation. The railways compensate for losses on subsidized passenger fares by charging higher freight rates. This has made rail freight charges in India one of the highest globally and is a key reason behind the drop in the railways share in India’s freight traffic from a high of 75% to about 39% in the last 50 years.

“There is no logic behind increasing the rail fare this year. People are not moving, and you cannot tax them more if they do. I don’t visualize any increase this year," said Arunendra Kumar, a former chairman of Rail Board.

Echoing similar views, Vaibhav Dange, an independent infrastructure analyst, said the railways’ revenue position should allow it to offer discounts to customers, but that is unlikely to happen. “At best, railways may not reduce the existing fare and help the economic recovery process to get deep-seated before bringing any change in fares," he said.

Queries sent to the railways and finance ministries remained unanswered until press time. The FY23 railway budget will be announced as part of the Union budget.

In FY21, the strict lockdown reduced passenger earnings by around 75% to just about ₹15,000 crore, while freight earnings grew around 3% to ₹1.16 trillion. However, lower passenger earnings due to fewer train services on covid-related curbs helped the railways control subsidies on passenger fares.

On an annualized basis, the railways provide a subsidy of more than ₹40,000 crore on passenger fares.

“If Indian Railways can’t bring down the freight rates, they should keep the rates unchanged. This is also required this year as the economy moved on the path of recovery after a bartering from covid-related restrictions," said another transportation expert, asking not to be named.

While the railways may not change the base fare for both passenger and freight services, fares could be rationalized in a few commodity classes altering charges for certain distances. For passengers, railways had already removed the special tag for mail and express trains in November last year. These trains being run during covid times had raised charges for passengers.

Passenger and freight rates have not been revised through the budget since 2014. In December 2019, the railways revised passenger fares by up to 4 paise per km through an executive order outside the budget. The fares have remained stable since.