The Parliamentary Standing Committee on Railways has recently made recommendations for changes in both freight and passenger fares. This suggestion, driven by the losses suffered by the railways due to fulfilling social service obligations and the impact of COVID-19, is meant to improve the fiscal health and performance of the system.
Committee’s Observations
The committee noted that the railways’ existing obligations, which include offering tickets at a lower price than cost and providing passenger concessions, led to a yearly loss in the passenger segment of approximately Rs. 35,000-38,000 crore. The COVID-19 pandemic further exacerbated this situation, leading to a decline in revenue from passenger services.
Additionally, the committee expressed concern over the regular deterioration in the Railways Operating Ratio (OR), a benchmark used to assess financial health. For instance, in 2019-20, an OR of 98.36% indicates that the Railways spends Rs. 98.36 to earn Rs. 100, demonstrating a tight profit margin.
Moreover, the committee drew attention to several ongoing challenges faced by the Indian Railways, including issues related to public service perception, capacity crunches, strained terminals, unbalanced fare and freight structures, and high rail freight charges.
Committee’s Recommendations
The committee strongly suggested revisiting social service obligations and resuming services suspended during the pandemic. They also proposed a “prudent adjustment” of passenger fares to lessen the burden on freight segments.
Another recommendation made was to make both passenger fares and freight rates market-driven. It was emphasized that the Railways need to enhance their operational efficiencies to retain customers and augment revenue.
In terms of management, the committee urged the Railways to strengthen their planning and financial mechanisms to earn non-fare revenues, for instance, dividends from public sector units, land leasing, parking fees, sale of scrap, advertisements, etc.
Recent Measures
In light of the current situation, Indian Railways has taken several steps to remedy the challenges faced. In December 2020, a Draft National Rail Plan was introduced to address capacity constraints and improve modal share in total freight transportation.
Additionally, Dedicated Freight Corridors – high-speed, high-capacity railway corridors exclusively for goods transportation – are being established. A policy for private passenger train operations was introduced in July 2020, allowing private firms to operate on the network with 151 new trains.
Future Strategies
The committee suggested subsidizing the frequent users through direct transfers to their bank accounts, similar to other government schemes. This ensures passengers pay full price while reducing the government’s subsidy burden to those who need it most.
As the country’s transport market evolves, it is projected that there will be an increasing demand for an integrated multi-modal ‘whole journey’ service. For this, the Railways’ passenger business strategy needs to aggressively target inter-city travel segments, which it currently serves through about 4000 daily trains.