Mint Explainer | Why the Indian Railways increased passenger fares twice in FY26
Indian Railways has increased passenger fares twice in the fiscal year to address losses from passenger services and reduce freight user burdens. The hikes aim to improve financial sustainability while keeping fare increases modest and avoiding sudden shocks to travellers.
The Indian Railways increased fares twice in this financial year—first in July and then in December, marking its most concerted effort in years to narrow losses from passenger services and ease the burden on freight users who have cross-subsidised passenger travel.
While the hikes have triggered political criticism, the railways argues that the increases are modest, progressive and fiscally unavoidable, especially when passenger fares recover barely 55% of costs, implying a subsidy element of about 45%, as railway minister Ashwini Vaishnaw highlighted in the Lok Sabha during the recent winter session of Parliament.
Why did the Indian Railways increase passenger fares twice in one fiscal year?
The twin fare revisions were part of a rationalization strategy aimed at improving the financial sustainability of passenger services without imposing a sudden shock on travellers.
The railways has been absorbing the rising costs of employees, pensions, safety investments and network expansion even as passenger fares remained structurally underpriced. Losses from passenger operations are increasingly difficult to offset, especially with freight growth moderating and further freight tariff hikes ruled out.
The July and December hikes together reflect a calibrated approach—small increases spread over time, rather than one steep hike.
The latest fare increase in December is only the fourth under the BJP government in the past 11 years and was preceded by increases in July 2025, January 2020 and June 2014.
What exactly changed in the 1 July fare revision?
The fare rationalization, effective 1 July, focused on marginal per-km increases:
• Ordinary second class (non-AC): +0.5 paisa per km
• Sleeper class: +0.5 paisa per km
• Ordinary first class: +0.5 paisa per km
• Mail/Express non-AC: +1 paisa per km
• AC classes: +2 paise per km
Crucially, no increase was imposed on suburban services and season tickets, and short-distance ordinary travel was largely protected through slab-based exemptions.
How much was the 26 December fare hike and who does it affect?
The second revision, effective 26 December, applies across all non-suburban passenger trains:
• Ordinary second class (non-AC): +1 paisa per km beyond 215 km
• Mail/Express non-AC: +2 paise per km
• Mail/Express AC classes: +2 paise per km
There was no fare increase for:
• Ordinary second-class travel up to 215 km
• Suburban services
• Monthly season tickets
A 500-km non-AC journey will cost about ₹10 more, while a Delhi-Mumbai AC-class journey becomes costlier by roughly ₹28. Tickets booked before 26 December are valid at the old fares.
“To meet the higher cost of employees, the railways are focusing on higher cargo loading and a small amount of passenger fare rationalization," the ministry of railways said in a statement, justifying the latest fare increase.
Why does the railways say that passenger fares are heavily subsidized?
According to railway minister Ashwini Vaishnaw, if a passenger journey costs ₹100, the Railways recovers only ₹55 from the fare, implying a subsidy of about 45%. The data underscores this gap:
• Cost per passenger-km: ~ ₹1.38
• Fare charged per km: ~ ₹0.73
• Annual passenger subsidy: about ₹60,000 crore
In FY23, the Railways spent ₹181 for every ₹100 earned from passenger services. These losses are not funded directly by passengers but by higher freight charges.
How does fare rationalization reduce freight cross-subsidy?
For decades, the Indian Railways has relied on freight earnings to subsidize passenger fares, pushing freight tariffs among the highest globally and eroding rail’s competitiveness against road transport. By marginally increasing passenger fares:
• Passenger losses narrow
• Pressure to raise freight tariffs reduces
• Railways can attract more cargo and improve modal share
Officials acknowledge that the long-held expectation that freight volumes alone will bridge the passenger deficit has not worked, making passenger fare correction unavoidable.
“The constant hope that the shortfall will be met from additional freight loading has not proven true - freight growth is languishing. Any increase in freight tariff is ruled out. Hence there is a need to raise or rationalize passenger fares with a practical approach," said Shubhranshu, a railroad professional and former chief of the Rail Wheel Plant at Bela in Bihar and former head of the design and production team of the Vande Bharat Express.
How does this help the railways’ finances and reduce dependence on budgetary support?
The December hike alone is expected to generate about ₹600 crore in additional revenue in the remaining months of FY26 and help improve the operating ratio, budgeted at a high 98.43% for the year.
Operating costs have surged:
• Employee costs: ₹1.15 lakh crore
• Pension bill: ₹60,000 crore
• Total operating cost (FY25): ₹2.63 lakh crore
The railways argues that modest fare increases, alongside efficiency gains and safety investments, will gradually:
• Improve internal surplus
• Reduce reliance on annual budgetary support
• Create headroom for sustained spending on safety, capacity and service quality
As the ministry put it, fare rationalization is being positioned not as a revenue grab but as a necessary correction to sustain a vastly expanded and a safer railway system.
topics
