Wednesday, Dec 17, 2014
Posted: June 22, 2014 11:41 pm

The government’s decision to hike railway fares, by 14.2 per cent for passengers and 6.5 per cent for freight, was long overdue. This hike had already been factored into the interim railway budget for 2014-15. But the UPA government, which had tried to effect the increase by stealth, did not follow through because of political-electoral considerations. With a targeted revenue of Rs 1,64,995 crore and estimated fuel expenses of Rs 30,000 crore — at a time when fuel and salary expenses alone amount to Rs 70 of every Rs 100 earned, and an unsustainable passenger subsidy adds up to Rs 26,000 crore — there was no real alternative to the hike. The projected working expense of Rs 1,44,199 crore is more than last fiscal’s Rs 1,27,260 crore and an estimated Rs 1 lakh crore is needed just for a safety upgrade. The operating (cost-return) ratio (OR) has slipped to 90.8 from last year’s 90.2, and the targeted 89.8 OR, still high, cannot be met by persisting with the practices of serially populist railway ministers, as in the UPA’s tenure.

The last major fare hike was in 1999, and although three hikes were effected afterwards, one was rolled back. In these 15 years, the WPI has increased 70 per cent. Thus, the railways estimate that at least a 50 per cent hike is necessary to target under-recoveries. In other words, even the current hike, effective from June 25, is not enough and more measures are needed. While the fuel adjustment charge, introduced last year, ought to allow automatic fare readjustments as international crude prices change, the government needs to urgently set up a rail tariff authority (RTA). An RTA with full powers to set prices binding on the railways is necessary to de-link tariffs from political considerations and protect the railways from populist adventurism in future.

The fare hike was announced less than a week after Prime Minster Narendra Modi spoke in Goa of the need to take “tough decisions” to revive the economy that may cause short-term hardships but promise long-term gains. The government also needs to politically communicate the necessity for such decisions, and the rationale behind them, to the people. A roadmap now needs to be drawn up for involving the private sector to help the railways evolve into a safe, comfortable, lean and efficient 21st century service that is also an engine of growth.

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