To take your ideas to Policymakers, Join the Campaign of #PolicyPulse Write to feedback@policypulse.com

Railway Budget: Fares may be hike by 10%

7th pay commission outlay may force Suresh Prabhu to increase fares

Policy Pulse
Publish Date: Feb 23 2016 12:37PM | Updated Date: Feb 23 2016 12:51PM

Railway Budget: Fares may be hike by 10%

 Facing resources crunch, Indian railways is mulling to increase the passengers fares by 5 to 10 per cent. Railway Minister Suresh Prabhu who will be presenting the railway budget on Thursday is considering this proposal against the backdrop of a decline in both passenger and freight earnings and the additional burden of Rs 32,000 cr towards implementing the 7th Pay commission recommendations.

 
On top of the 7th Pay Commission burden this, the gross budgetary support for the 2015-16 has also been slashed by Rs 8,000 cr by the Finance Ministry due to low spending by the Indian Railways. The sources said there are several possibilities including a fare hike are being looked into nothing has been finalised yet.
 
The sources said that currently AC fares are already on higher side. If AC fares are raised, then they could even surpass the fares of low-cost air carriers in some sectors. Similarly, freight rates are also at a high level and loading of steel, cement, coal, iron ore and fertiliser is on a down slide that rules out any further increase in this area.
 
Indian Railways had effected a 14 per cent across-the-board hike in passenger fares in 2014 during the NDA regime and a 10 per cent increase last year. 
Railways’ total earnings from freight and passenger fares were Rs 1,36,079.26 cr until January this year as against the target of Rs 141,416.05 cr, a shortfall of 3.77 per cent. 
 
What Experts say
 
The railways’ decongestion plan requires massive investments and a slack in revenue can affect internal resource generation. Also, there are the pay commission recommendations, which, if implemented, will further squeeze railway finances to the limit.
 
Raising freight rates may not be a prudent option now, considering the fragile demand. The railway ministry had said in a concept paper on the Rail Development Authority of India that enhanced freight rates have not helped in attracting more traffic to the railways and have, in fact, led to traffic moving to road in certain segments.
 
The fact of the matter is that the weak economy has put Indian Railways in a tight spot. Railways minister Suresh Prabhu had projected double-digit growth in revenue during his last budget on the expectation that the core sectors of the economy would show healthy growth. But, as the economy sagged and traffic slowed, revenue growth dropped to single digits.