Fare track: Latest hike in railway tariff seems a modest proposal

The Indian Railways’ proposal to raise fares from July was long overdue. But questions may be raised on whether this increase, the first since 2020, can make an appreciable difference to the state-owned utility’s functioning. The railways admits that the increase would be the lowest since 2013. The highest raise is being planned for the air-conditioned (AC) class in all trains at 2 paise per km; for the non-AC sleeper class, the increase is 1 paisa per km, and for second-class half a paisa per km. Suburban fares and monthly season ticket rates would remain unchanged. 

The fare increase is expected to generate revenue of ₹700 crore in FY26 over a Budget estimate of ₹92,800 crore. In the larger picture, this addition is unlikely to change the dynamics of the railways’ revenue or strengthen its ability to finance the much-needed infrastructure upgrades in track replacement and signalling equipment. Passenger fares account for a little under a third of the railways’ revenue and, except AC three-tier and AC chair-car in some years, other classes of passenger services make losses. These losses are classified as social-service obligations of providing affordable transportation. The railways covers the losses principally through cross-subsidies from freight operations (roughly 60 per cent of revenue) and AC fares. This policy is problematic because freight has been losing share to road transport, and AC services account for a minuscule 5 per cent of overall passengers. 

Between 2007-08 and 2021-22, the share of the railways in freight dropped from 36 per cent to 26 per cent. More than half of this (in revenue and tonnage) comes from coal transport to thermal-power plants. The decarbonisation programmes of thermal plants add an element of risk to the largest part of its operations. The Railway Board has noted that the utility needs to attract more high-value freight, such as finished metals, agri-produce, chemicals, and container traffic. But sustained underinvestment in capacity has resulted in congestion on high-demand routes and low average speeds — as low as 30 km per hour (kmph) – and that reduces the competitiveness of the railways compared with road transport. The two dedicated freight corridors, most of which are in operation — with their average speeds of 45 kmph and 54 kmph — and the Gati Shakti multimodal cargo terminal project, which is to improve last-mile connectivity, could help, though there are questions about the speed of the transition. 

The additional earnings from this modest passenger fare rise, then, do not change the inadequacy of the railways’ internal revenue to finance capital expenditure. For this, the utility will continue to rely on government equity and extra-budgetary resources, principally because about two-thirds of internal revenue is for salaries and pensions. These rising costs have impinged on the railways’ efficiency, with the operating ratio hovering at 98 per cent for the past few years. There will also be obvious  consequences of underinvestment in capacity and safety infrastructure for the railways’ safety record.  But the deeper problem, as the NITI Aayog has pointed out, is the lack of clarity on the commercial and social objectives of the railways. Without rationalising these contrasting goals, the railways will struggle to become world-class.