 "Indian Railways")
The second tranche of increase in railway passenger fares this financial year, effective from December 26, signals the Indian Railways’ intention to improve operational efficiency. The move saw key railway-linked stocks jump as much as 10 per cent as a result of expectations of better revenue visibility. It is unclear, however, whether the current increases will make a meaningful difference or address the deep-seated structural imbalances in railway finances.
The Railways has described the move as “modest” and calibrated to impose a minimal burden on travellers. To this end, suburban and monthly season tickets and fares for ordinary class up to 215 km have been kept unchanged. Fares for air-conditioned classes and non-air-conditioned classes on mail and express trains will go up by 2 paise a km. Fares for non-air-conditioned travel on ordinary trains will increase by 1 paisa a km for journeys of more than 215 km. The Railways expects to earn ₹600 crore more from this latest round of increases for FY26 in addition to the ₹1,500 crore from the earlier round. This additional revenue, though much needed, is unlikely to alter the basic structure of the railways’ earnings, over 60 per cent of which derive from freight services, or make a significant difference to the operating ratio (the ratio of operating expenses to traffic earnings), which hovers at 98 per cent. Before the fare increases, under recoveries on passenger fares — which were largely seen as fulfilling the Railways’ social obligations — amounted to more than 40 per cent of the ticket cost. This deficit is bridged by freight rates, which derive from the Railways’ near monopoly on the bulk transport. The irony is that this cross-subsidy is dependent on a steadily dwindling market share vis-à-vis the private network of road transport.
Today, the Railways has a 27 per cent share of the freight market, a predicament that largely has to do with inefficiencies such as relative speed and limitations of last-mile connectivity. It aims to increase its share to 45 per cent by FY31. The problem is that this target is predicated on two infirmities. First, coal accounts for more than half the freight revenue — up from 45 per cent in 2015-16. This increasing reliance on coal is now being viewed as a medium-term risk because climate change-related decarbonisation targets are gathering traction. The focus on commodities rather than other high-value goods such as finished metals, chemicals, agricultural products, and so on also constrained freight earnings. Two nearly completed dedicated freight corridors — from Punjab to Bihar and Navi Mumbai to Noida — which aim to address problems of congestion on high-demand routes are yet to yield a noticeable increase in the Railways’ freight share.
Reliance on a stressed freight sector for revenue has left the Railways in a precarious situation because of its rigid cost structure. More than 40 per cent of revenue expenditure goes to pay staff salaries and pensions — a figure that could swell after the 8th Pay Commission recommendations. Taken with rising debt-service obligations and fuel costs, the Railways’ revenue expenditure accounts for about 99 per cent of its internal revenue receipts, leaving almost nothing for capital expenditure. This keeps the railways heavily dependent on budgetary support for expenditure on expansion, modernisation and safety infrastructure, and increasing borrowing, both untenable in the long run. To metamorphose itself into a genuinely world-class utility, the railways will have to rethink its current model of balancing social obligations with its commercial accountability.
