Indian Railways may hike passenger fares

May gain around Rs 5,000 crore through 10 per cent hike

Facing a severe financial crunch, the railways ministry is said to be mulling an increase of up to 10 per cent in passenger fares. If approved, the increased rates will fetch Indian Railways (IR) an additional Rs 5,000 crore, partially offsetting the impact of the Pay Commission recommendations and the cut in the Centre’s financial assistance or Gross Budgetary Support (GBS).

The ministry is likely to announce the decision soon, seeking to maximise gains from the increased volumes in the peak season beginning March.

The recently announced recommendations of the Pay Commission will hit IR by Rs 32,000 crore annually. And, the finance ministry has cut the rail ministry’s Rs 40,000 crore initially budgeted GBS for the current financial years by Rs 12,000 crore. Also, IR has grossly failed to meet its freight and passenger earnings target.

At such a time, a fare rise will help IR improve its operating ratio (OR), the money money spent to earn every extra Rs 100. The impact would, however, be visible only in the next financial year and Prabhu might have to struggle to show a healthy OR when he presents the next rail Budget in Parliament on February 25.

IR had budgeted for a 15 per cent jump in total earnings to Rs 188,000 crore in the current financial year, as compared to Rs 163,000 crore in 2014-15. Around 63 per cent of these (Rs 120,000 crore) were to come from freight; the passenger segment was expected to contribute Rs 50,000 crore. Total expenses were budgeted to rise 12 per cent to Rs 162,000 crore. Put together, the ministry had hoped to bring down (or improve) OR to 88.5 in 2015-16 from the 91.8 in 2014-15.

While a fare rise might shore up revenue, it will not help IR’s prospects for wriggling out of the severe downslide in passenger volumes. It has already missed its target in this regard of 5,700 million for the April-December 2015 period by a little over five per cent, with people attracted by the low fares offered by airlines.  

Crude oil accounts for around 40 per cent of the cost of airlines in India. In 2015, the price of the benchmark Brent crude fell by 35 per cent. This followed a $48 slide in 2014, providing a massive opportunity for airlines to cut fares. As a result, airline passenger volumes jumped 20 per cent in 2015, according to recent government data.

The unconfirmed reports of a passenger fare rise gain strength from a just-released report from Axis Capital on the railways’ financial health, shared by the ministry with the media. The report recommends a 10 per cent rise in passenger fares and one of five per cent in freight rates for IR to remain financially healthy.

The previous revision of passenger fares was in June 2014, of 14 per cent, immediately after the present government came to power and a month before the full rail Budget. Prior to that, former railways minister Dinesh Trivedi, of the Trinamool Congress, had announced a fare rise in the rail Budget for 2012-13 but was removed by his party for that decision. His successor, Mukul Roy from the same party, had rolled back the hike.