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Indian Economy

Rationalisation of Railway Fares

  • 10 Mar 2021
  • 6 min read

Why in News

Key Points

  • Committee’s Observation:
    • Social Service Obligations:
      • The losses incurred by the railways in passenger services purportedly due to the social service obligations which include pricing tickets at fares lower than costs and passenger concessions.
      • The railways incur losses to the tune of Rs. 35,000-38,000 crore a year in the passenger segment.
    • Effect of Covid:
      • Revenues from passenger services further deteriorated due to suspension of operations during Covid-19.
    • Operating Ratio:
      • Noted the regular deterioration in Railways Operating Ratio (OR).
      • OR indicates how much the Railways spend to earn a rupee. It helps determine the financial health of the Railways.
      • For example, an operating ratio of 98.36% for 2019-20, indicates that to earn Rs. 100, the Railways will have to spend Rs. 98.36.
        • For 2020-21, it is estimated to be 131.4%.
        • For 2021-22, Railways is targeting OR of 96.15%.
  • Challenges in the Functioning of Railways:
    • Indian Railways’ ills are as multifarious as they are well-known: bureaucratic, obese structure with a misconceived perception of public-service-obligation, warped investment priorities, capacity crunch on arterial routes, strained terminals, irrational fare & freight structures.
    • It has one of the highest rail freight charges in the world. This has also resulted in consumers moving to roadways for freight transportation, which is more convenient for them.
    • The predicament of the railways is that the profits earned from freight business are utilised to compensate for the losses incurred on passenger and other coaching services, thereby adversely affecting both freight and passenger business.
  • Committee’s Suggestions:
    • Revisiting social service obligations and resuming services suspended during covid.
    • Adjust Passengers Fares:
      • Undertake “prudent adjustment” of passenger fares to reduce the burden on freight segments.
    • Make Fares Demand-cum-Market Driven:
      • Both passenger fares and freight rates have to be demand-cum-market driven and fixed differently for different segments.
    • Retain Customers:
      • As the demand for transport is elastic in a competitive market the Railways should be mindful of the fact that any increase in fares should be confined to a certain limit depending upon the competition from other transport modes.
      • The operational efficiencies of the railways in both freight and passenger business have to be leveraged to a greater extent so as to retain the customer base and enhance revenues.
    • Strengthen Planning and Management:
      • The railways should strengthen their planning, management and monetary mechanisms to earn substantial non-fare revenues through various methods/sources, already intended and put in place.
        • For example: Dividends from its public sector undertakings, land lease, parking, sale of scrap, advertisements and publicity etc.
      • Railway finances should be managed prudently so that the OR may reach at acceptable level in the near future.

Recent Steps

  • Draft National Rail Plan:
    • In December 2020 in an endeavour to address the inadequacies of capacity constraints and improve its modal share in the total freight ecosystem of the country, Indian Railways has come up with a Draft National Rail Plan.
  • Dedicated Freight Corridors:
  • Introduction of Policy for Private Passenger Trains Operations:
  • Adarsh Station Scheme:
  • Restructuring of the Railway Board and Merger of Different Railway Officer Cadres:
    • In 2019-20, the government approved the restructuring of the Indian Railways, including a reduction in the Board strength as well as the merger of the different cadres into a central service called the Indian Railway Management Service (IRMS).

Way Forward

  • Subsidising the daily or frequent user can be done in the form of a direct-to-bank account, as is done in the case of several other government schemes. This will ensure the passengers pay a full price and the government’s subsidy burden is reduced to only those classes who need it the most.
  • As the country’s growing transport market changes in character, the key demands would be an integrated multi-modal ‘whole journey’ service. Railways’ passenger business strategy needs to aggressively target inter-city travel segments as its core business currently served by some 4,000 trains daily, addressing the acute shortage in supply of such services, substantially upgrading and accelerating them with modern pre-board and on-board services.

Source:TH

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