Passengers must pay: Rail freight revenue can increase, but so must fares

A parliamentary panel has urged Indian Railways to diversify freight beyond coal, revisit tariffs and confront passenger fare subsidies to keep the system financially viable

The Parliamentary Standing Committee on Railways has produced a report titled “Increasing freight-related earnings of Indian Railways and development of Dedicated Freight Corridors”, which was presented to Parliament on Tuesday. The report makes some important suggestions on diversifying the railways’ freight income, for example, that it move beyond its traditional reliance on transporting coal and iron ore to more modern cargoes such as those relevant to India’s fast-expanding ecommerce sector. It also argues for creating freight corridors, some of which it says should be privately financed. It has also made some consideration of the income that the railways receives from freight, which is vitally important for its operations. Freight provides between 65 and 70 per cent of the organisation’s income every year. For example, in 2023-24, it received about ₹1.7 trillion from freight out of a total income of ₹2.6 trillion. The current management has focused on increasing this revenue stream through rationalised tariffs, increasing its rolling stock, and the creation of terminals under the Gati Shakti infrastructure programme.

 

The additional loading that has supported this increase in freight is partly due to the stability in tariffs that the railways has provided. This has, however, attracted the attention of the committee, which has pointed out that the last major revision of rates had taken place in 2018. The parliamentarians argue that the organisation should conduct an annual assessment of rates to ensure that they (the rates) remain competitive in relation to those of highways as well as other modes of transport. Certainly, the railways’ share in freight transport is a problem that needs addressing. At the beginning of liberalisation, in 1991, its share was about 60 per cent, but it hovered at 27-29 per cent in recent years. The government has planned to increase this to 45 per cent by 2030-31, including as part of its commitment to climate change.

 

But looking only at freight rates would solve just one part of the problem. The cross-subsidisation of passenger travel by freight is the fundamental structural problem in Indian Railways, and one that the committee has touched on only gingerly. It has argued that revenues in the air-conditioned classes of travel should be “reviewed” to “align them with costs incurred”. But it has also suggested that general-class travel remain untouched, and that the target should not be competitiveness but the “affordability” of tickets, even at the price of reviewing operating expenses for passenger trains. This is the wrong direction of travel. There is a real demand for accessible, comfortable, and safe railway travel — even if that means that general-class passenger fares are increased somewhat to bring them in line with upgraded facilities. On average, according to previous auditor reports, passenger tickets are subsidised by 45 per cent. This is the basic problem that has to be addressed. The railways is running out of time. The Eighth Pay Commission might increase the wage and pension bill for the organisation from 2026 significantly. How long can freight pay for both passengers and pensions, and also keep the railways competitive? Revenue will have to be raised from passengers, or the railways will continue to face problems.