Upper class/freight too costly, lower class below cost
Though the fall in the Railways’ share of the country’s freight traffic is well-documented, what is less appreciated is the dramatic fall in the freight operator’s share of upper-class passenger traffic. As the report of the Parliamentary Standing Committee on Railways headed by former railway minister Dinesh Trivedi points out, from a small fraction of the Railways upper class business—as represented by the AC -1 and AC-2 category of travel—in early 2000, the number of domestic air travelers today (largely on low-cost carriers, or LCCs) is more than 50 times the number travelling in AC-1 and six times the number travelling on AC-2. The combined business of all four AC classes, the report points out, is a fifth smaller than the number of passengers flying—indeed, while the domestic air travel business has been growing in double-digits over the past few years, and 15% in FY16, the Railways registered a negative growth in all four AC classes in FY16.
The reasons for this are not hard to find. While the first-class AC segment costs around the same, or even more, than what LCCs charge today, most passengers prefer to fly since it also gets them to their location faster—yet, a 17% fare hike has been baked in for FY17. The fare for AC-2 is just marginally lower than that for low-cost carriers and this class is also losing its popularity—the number of passengers travelling in AC-2 fell from 25.15 million in FY15 to 24.98 million in FY16. Fares for AC-3 (AC three-tier) are still 30-40% cheaper than those charged by low-cost airlines, but any increase here—a 13% hike is pencilled in here in FY17—will hit traffic. Though lowering the fares for the air-conditioned classes, apart from increasing the number of coaches, may look like it is pandering to the well-heeled, railway minister Suresh Prabhu needs to push for this—if only to be able to serve the poorer customers since the R30,000 crore loss on passenger carriage has to be made up from somewhere. A mere 0.3% of all passengers on the railway network travel on AC-1 and AC-2, but they accounted for 8.7% of all passenger revenue in FY16. In contrast, 54.4% of passengers travelled on suburban trains but yielded just 5.7% of total passenger revenues. A comparison with China is interesting. India’s passenger yields are a fourth that of China (37% in PPP terms) but 42% higher when it comes to freight (that’s also one of the reasons contributing to India’s export competitiveness). The ratio of cost to earnings per km fell from 62% in FY00 to 49% in FY13 for passenger services but rose from 129% to 164% for freight services.
Not surprisingly, the Parliamentary Standing Committee report pitches for a market-driven and dynamic pricing strategy and comes down on the hike in fares where the Railways is vulnerable to its competitors. What is odd, though, is that it frowns upon various charges brought in the budget such as tatkal fees, cancellation charges as well as various surcharges ‘which are not reflected in the Budget speech’. Ideally, they should have been, but in a country where being market-oriented is considered a sin, this is the only way to raise passenger fares, even if marginally—that’s how the budget pencils in a 12% hike in passenger fare. Dinesh Trivedi would remember how his party chief Mamata Banerjee sacked him as railway minister when he raised fares, so it is understandable that Suresh Prabhu wouldn’t want to brag about the fare hikes.