A higher price to pay?


The Indian Railways may have a very busy passenger segment, carrying passengers equivalent to the world’s population every year, but it also incurs humongous losses on this sector. A. Hari unravels the mystery behind this and tells us what steps need to be taken to make Indian Railways more cost and fare efficient.

Indian Railways is today one of the leading rail networks of the world as far as passenger numbers is concerned, as the number of passengers transported every year is equivalent to almost the population of the entire world. Still, the railways incurred a huge loss of around ` 25,000 crore during 2012-13 from the passenger segment. Indian Railways needs to initiate an action plan to make the passenger business profitable and attractive. This can be achieved only if there is a total rethink on the pricing strategy for passenger traffic.

At present, the charges are levied based on fares for various slabs of kilometres applicable to various classes of travel. Except for periodical revision of fares and changes in number of slabs, there is no major change in the basic concept of fixing the passenger fares for the last several decades.

The average rate per passenger per kilometre in terms of paise has been provided in the table given below.

Average Rate per Passenger per km (in paise)
Year in Paise % Variation
1970-71 2.50
1980-81 3.97 59
1990-91 10.64 168
2000-01 22.90 115
2012-13 28.50 24

There has been a very marginal increase of 24% in fare from the year 2000 till 2012-13. The rate per passenger has increased from Rs. 22.90 in 2000 –2001 to Rs. 28.50 during 2012-2013. Passenger fares on Indian Railways are among the lowest in the world and it does not recover even the cost of operating its passenger services!

Review of passenger fares

This article explores the need for drastic review of basic concept of fixing passenger fares in Indian Railways. In view of the dynamic changes in market conditions and severe challenges posed by competing modes of transport, it has become necessary to think of bold ideas, a few of which are outlined below.

  1. Consider operational cost and pricing of competing modes: The passenger fare structure is presently based on factors such as distance, class of travel and category of train. The passenger fares must cover at least the operational costs for different classes of travel. A gradual rise in fares at regular intervals must be made so as to ensure recovery of operational cost over a period of time.
    The fare structure of other competing modes of travel must also be considered while fixing the passenger fare structure. There are different competing modes based on the class and the distance of travel. The severity of competition will vary between different segments across India. The regional ground realities must also be taken into account while fixing the fare.
  2. Introduction of differential pricing: The concept of differential pricing can be introduced as a trial measure. Reduced fares can be considered for low demand routes where the occupancy of trains is very poor. Prices can also be reduced during off-season and non-peak hours in an otherwise high demand route. Indian Railways can consider the feasibility of introducing congestion pricing in routes where there is very high demand.
  3. Introduction of segment based pricing: Now pricing is based on the distance travelled in terms of kilometres for all segments in our country. But there are huge differences in respect of various factors such as availability of alternative modes of transport, frequency and pricing of competing modes of transport etc., in various segments. For example, the ground realities in Mumbai–Pune stream and Chennai–Jolarpet stream are totally different. A different pricing strategy may be more effective in providing tough competition to alternative modes of transport and ensure better market share of passenger traffic. Zonal railways may be empowered to review pricing within a broad criteria fixed by the Railway Board. It is suggested that pricing may be varied for different segments for the same distance.
  4. Higher pricing for short journeys in long distance travel: Another pricing differentiation could be that the price of a short journey on a long distance train could be higher than the price of the same journey on a short-distance train. This move will gradually shift short distance passengers to short distance trains so that a few stops can be removed from long distance trains, and they can be speeded up in a gradual manner.
  5. Discounted fares for less patronised trains: A detailed survey by a professional agency about occupancy of reserved and unreserved accommodation is required to identify less patronised trains. The Railway Board may issue broad guidelines and also fix maximum discount which can be permitted for such identified trains. Poor occupancy may prevail between select pairs of stations and in such cases, discounts may be offered only between those stations identified by the respective zonal railways.
  6. Variation of pricing based occupancy on different days: All trains are fully patronised during weekends and closed holidays. But during working days, the trains are not fully occupied. As an experimental measure the pricing can be reduced during week days to promote occupancy of trains. This move will reduce extraordinary pressure during weekends and also ensure that passengers prefer to travel by train due to availability of accommodation.

There is huge demand for lower berth and allotment of coupe in First Class A/C coaches. A portion of available lower berths / coupe can be allotted on payment of additional charges. In view of the steady decline in the share of passenger traffic, it has become necessary for a total rethink on the existing fare structure in Indian Railways. There is a critical need for radical reforms in the passenger fare structure to facilitate Indian Railways in regaining the market share of passenger traffic.

Threat posed by low cost airlines

The margin between air and train fare has been decreasing with domestic airlines offering discounted tickets every now and then. Low cost airlines are giving stiff competition to upper class segments of the passenger business. But these top-end classes account for a small proportion of the total traffic carried by Indian Railways.

During July-September lean travel season, airlines offer very competitive advance-purchase airline fares which will compare favourably with second AC fares in Railways. In peak travel months (April-June and October-December), the difference in train and airfares will be significant and flying will be more expensive.

It is a normal trend that passengers move to flying when they are not able to get a confirmed ticket. Indian Railways is now running several premium and special trains to meet the demand from passengers. The threat from airlines, however, can be squarely met if issues of speed, comfort and convenience in inter-city travel are addressed.

Whoever has travelled by air, can easily understand the pain of reaching the airport, as they are mostly located in the outskirts of the city. This issue adversely affects the comparative advantage in terms of saving time and also causing inconvenience to passengers.

Railways and airlines must get into local arrangements to share the business in such a way as to leverage the strengths of each other. Instead of competing with each other, they can try to complement their strengths and grow together, fully utilising their infrastructure to the optimum extent.

Making Indian Railways more competitive

There is an urgent need for expansion and modernisation of its network which has not been attempted due to paucity of resources.

The railway ministry plans to attract investments worth Rs. 17,000 crore during 2015-16 from various public sector undertakings, multilateral and financial institutions. The Plan outlay has been increased to ` 1 lakh crore for 2015-16, which includes a budgetary support of Rs. 41,000 crore. And for the next five years, the total investment has been set at Rs. 8.5 lakh crore.

Plans are afoot for roping in PSUs (Public Sector Undertaking) to partner the Railways in providing better connectivity to transport their raw material and finished products such as coal, steel and cement. Joint ventures are to be set up with states for focused project development, resource mobilisation and implementation within the deadlines. Indian Railways plans to consolidate its share in passenger business, particularly, in long distance and medium distance segment by increasing the speed of passenger trains, and introduction of fast services between metropolitan cities up to 200 kms. Development of High Speed Corridors on selected routes is seen as another key strategy for inter-city transport. Indian Railways has planned to increase daily passenger carrying capacity from 21 million to 30 million in five years.

The Railways have recently planned several initiatives such as better ticketing facilities, improved catering service, better on-board house-keeping facilities, a helpline to address customer grievances, improved toilet facilities, upgradation of stations and increasing the speed of certain trains.

The implementation of new initiatives in a time bound manner will improve the competitiveness of Indian Railways and help it in arresting further decline of its market share in the passenger segment. The recent thrust on expansion and modernisation is likely to help Indian Railways to also improve its market share in the future.


A. Hari

The writer works as Chief Commercial Inspector in Southern Railways. He wishes to project a positive image of Indian Railways through his blog www.indianrlynews.wordpress.com. He is passionate about inspiring youth through his website: www.inspireminds.in