THE RAILWAYS is finalising an option for passengers to voluntarily “give up”, either in part or full, the subsidy component in tickets, following its commitment to the Prime Minister’s Office (PMO) to launch the initiative within the first 100 days of the NDA government’s second term.
In line with the government’s “nudge policy” to “gently steer people towards desirable behaviour even while preserving their liberty to choose”, as described in the Economic Survey, the “Give It Up” policy in Railways will urge people to forego the subsidy for a better, modern rail system.
On an average, the Railways collects only 57 per cent of the cost of passenger transport operations from tickets. Sources said the proposed class-wise calculations, which are applicable on base fare, will make travel in popular classes like AC-2 tier slightly more expensive if a passenger gives up the subsidy.
Effective only if it finds takers
With rising fuel prices, manpower costs and inflation, Railway tariffs are below optimal given the operational expenditure. “Give it up” aims to reduce operational losses but its effectiveness will be felt only if many passengers opt for it.
According to sources, the Railways option is different from the initiative for LPG cylinders, which powered the Pradhan Mantri Ujjwala Yojana during the NDA’s previous tenure. While Ujjwala promised one cylinder to a home in a village for every subsidy foregone, sources said the same cannot be applicable in Railways. Moreover, they said, the “subsidy” that Railways provides is not from the general exchequer but a cross-subsidy from its own freight business.
Sources said policy makers in the Railways have discussed the “incentive” involved in giving up the subsidy. “For instance, giving up the subsidy on a ticket cannot guarantee a confirmed ticket. If it does, it is nothing but the Tatkaal scheme with a new name,” said sources.
One of the ways forward is for reservation forms at counters to have the option for passengers to opt for the “give it up” choice, they said.
Online, the system will be easier, as is prevalent now in concessions for senior citizens. Since July 2017, when the Railways introduced a “give it up” scheme for senior citizens to forego their concession either in part of full, 48 lakh passengers availed of the option, earning the Railways an extra Rs 78 crore.
Sources said the Railways recovers only around 38 paise per rupee spent on a kilometre of passenger travel. After being computed class-wise, they said, the effect is distributed and a per-seat subsidy worked out. So far, the calculations show that AC Chair Car and AC-III tier, the most popular classes of travel, see a modest profit after recovering their traction cost.
However, policy makers are mindful that in upper AC class, ticket prices without subsidy might make them closer to the cost of air travel, especially across long distances. Over short distances, the competition may be from bus fares. “But it’s not like if you give up subsidy, your ticket cost will double,” an official said.
For the suburban network, sources said, the option will be to give up subsidy on the highly under-priced monthly season ticket (MST), which recovers the cost of only 15 trips in a typical origin-destination sector. “In cities like Mumbai, where MST is popular, the target for ‘give it up’ would be those who can afford to buy tickets at full cost…and there are many,” said the official.
However, the Railways’ concept of “cost” incurred vis-a-vis ticket price has been questioned by policy think tank NITI Aayog.
“It is difficult to state with certainty that the tariff levels are scientific reflections of system costs given the data collection approach currently being followed… It does not reflect the marginal cost approach that would indicate the cost IR (Indian Railways) incurs for providing a particular unit of service. For example, it is difficult to compute precisely the unit cost IR incurs to provide AC1, AC2 or AC3 class of services. Hence, in the absence of scientific data related to marginal costs, it is difficult to compute accurately the levels of under-recoveries across various services/classes,” a NITI Aayog study had said.