Rail Budget 2017: Get ready to pay more for train tickets

Moneycontrol Bureau

Prompt responses to tweets from distressed passengers, pizzas at your seat, and even a proposal to exchange wedding vows at railway stations. Over the past couple of years, Suresh Prabhu has certainly endeared himself to the public. But as a qualified chartered account, India’s Railway Minister knows it’s the money that ultimately matters. And to that end, his ministry continues to face an uphill battle in balancing its books.

In last year’s Railway Budget speech, Prabhu did his public image further good by outlining his ambitious plans for one of the world’s largest transportation systems. This year, it’s unclear whether Prabhu will even get the chance to tell Parliament on February 1 how his ministry intends to spend its money. That’s because for the first time in close to a century, the Railway Budget has been merged with the Union Budget.

Prabhu might well be happy to let Finance Minister Arun Jaitley do the talking, given that there’s a good chance he will have to deliver some bad news to the 24 million passengers that travel by train every day.

The ministry is expected to introduce a safety cess to fund its Rs 1.2 lakh crore safety corpus – Rashtriya Rail Sanraksha Kosh – following a year of derailments that saw more than 150 people killed in a crash near Kanpur alone. This means railways tickets for second class and AC 3-tier journeys may increase significantly owing to a lower fare base, while AC 1-tier and 2-tier ticket prices will increase marginally.

In December, Prabhu had tried to avoid this conundrum by requesting Jaitley to have the Centre fund the corpus entirely. But Jaitley only agreed to finance 25 perecent of the fund from the Consolidated Fund of India.

While part of the rationale for merging the Budgets for 2017-18 could well have been the Railways’ fragile finances, the government may also be hoping that the blow of a fare hike will be cushioned by other big-ticket proposals in Jaitley’s Budget speech.

For the Indian Railways, passenger traffic is subsidised by freight or cargo with fares, on an average, covering 57 percent of the cost. The last full fare hike was in 2014, when there was a 14.2 percent hike in all classes of passenger fares and 6.5 percent increase in freight charges. Also on the anvil is the creation of a Rail Development Authority, an independent agency which can recommend tariff changes periodically by taking into account all direct and indirect costs such as pension, debts and market-driven forces.

A fare hike would boost the finances of the Railways, which expects Rs 1.84 lakh crore revenues in the currency financial year, but has already lowered its revenue expectations to Rs 1.7 lakh crore in the revised estimates. Earlier this month, Prabhu said the Railways is expected to have an operating ratio of 94 percent for the current financial year despite the huge Rs 32,000 crore liability of Seventh Pay Commission and negligible growth in the freight loading. In last year’s Budget, the railway minister had targeted an operating ratio of 92 percent. A combined Budget may also save the Railways Rs 10,000 crore, with the ministry having sought an exemption from paying dividends to the Centre this year, prompted by a rise in additional salary and pension spending for its 1.3 million employees. 

The ministry is also trying to reduce charges on freight, which accounts for a larger portion of the Railways’ revenue, to prevent cargo from moving to other transport modes, and has reduced parcel sizes and average distances.

There have been indications that the Railways will also get Budget support to meet part of its capital expenditure, and will be allowed to raise extra budgetary resources. Jaitley may also present a separate statement of Budget estimates and demand for grants for Railways in the General Budget.

On the fare front, the ministry is further expected to continue its flexi-fare system and dynamic pricing for premier trains in 2017-18.

However, recent figures show that the experiment of making AC travel more expensive for those booking late has yet to bear fruit. The number of passengers travelling in air-conditioned railway coaches, which touched 108 million, grew at less than 5 percent from April-December. Travellers have instead opted for the faster option of air travel, where the fares are marginally higher or even lower in some cases.