The hike in freight rates for several commodities announced by the railways last week was, on the face of it, a reasonable response to the escalating prices of two of its key inputs""energy and steel. Further, freight capacity is being stretched by industrial buoyancy. | |
| Tight capacity and rising input costs are a recipe for price increases and no one should grudge the organisation its right to maintain as healthy a balance as possible between revenues and costs. |
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| However, from a broader perspective about what ails the railway system, giving in to the temptation to raise freight rates while not touching passenger fares is downright retrograde. |
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| The political compulsions operating on the railways should not be underestimated. They do impose severe constraints on the organisation's ability to price its services rationally, giving due consideration to both cost and competitive pressures. |
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| This has resulted, over the years, in the emergence of two significant imbalances, both of which threaten the financial viability of the railways' operations and, therefore, their ability to garner resources other than through budgetary support. |
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| One is the discrimination against freight, which has seen the railways lose a lot of its more profitable traffic to the roads. The other is the discrimination against higher classes of passenger travel, which, in recent years, has seen a shift in passengers towards the airlines, which to their credit have aggressively targeted this section through discounting. |
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| The ambitious plans of the promoters of low-cost airlines indicate the promise of this segment. |
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| In short, in attempting to keep lower-class passenger fares as low as possible, the railways are driving away their best customers. The Expert Group on Indian Railways, chaired by Rakesh Mohan, had in 2002 recommended a significant re-balancing of tariffs in favour of freight and higher passenger classes. |
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| The railway budget of 2003 made some moves to implement these recommendations, and brought down the average freight rate and the average fare on higher classes. It also introduced a flex-price scheme which was supposed to lower fares for select routes during the off-season slack. |
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| But it didn't do the one thing that was central to the group's recommendations. Lower-class passengers account for over 90 per cent of the traffic and about 80 per cent of passenger revenues. Without raising these fares, by however small an amount, there is no way that railway finances are going to be brought back on track. |
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| Regaining lost freight and higher-class passengers is not enough to stem the bleeding. |
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| Continuing down this path ensures that the railways will simply not be able to generate the minimum amount of resources needed to decongest its most crowded corridors and speed up its trains, which is the key to increasing productivity and retaining competitiveness. |
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| Everyone from the Prime Minister downwards speaks of large infrastructure requirements. But, when it comes to the crunch, political expediency invariably seems to triumph. |
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| If this is how the government plans to go about its business, it isn't going to get very far with its infrastructure plans. |
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