ANALYSIS MC Analysis: Why is the Indian Railways hiking passenger fares from July 1?

Senior officials from the Indian Railways told Moneycontrol that the marginal hike in passengers fares is part of the overall strategy of the Indian Railways to turn profitable by 2030 and provide better quality services to passengers.

The Indian Railways is planning to raise fares across AC, sleeper, and second classes on long-distance routes as part of its ongoing efforts to manage operational costs without burdening passengers, especially regular commuters and those travelling short distances.

Starting July 1, passengers will have to pay a minimal hike of 1 paisa per km in fares for non-AC Mail and Express trains (over 13,000 of which run daily across the country), while a 2 paise per km increase is proposed for AC class tickets.

However, there will be no increase in fares for suburban tickets and monthly season tickets, nor will there be any fare hike for ordinary second-class tickets up to 500 kilometres, after which fares may be hiked by a half paisa per km.

The matter is under consideration at the higher level and will be notified soon, according to a senior Indian Railways official.

Why is the Indian Railways hiking passenger fares?

The planned hike in train tickets comes after five years of unchanged fares. The last fare revision took place in January 2020, when second-class fare for ordinary and Mail/Express trains was increased by 1 paisa/km and 2 paise/km, respectively, while fares in sleeper and all AC classes went up by 2 paise/km and 4 paise/km.

According to government officials, the hike in railway fares was a rationalisation that was long overdue. "This hike will contribute to an additional Rs 1,500 crore in passenger revenues and help the Indian Railways expand passenger amenities and facilities at railway stations and in trains. Similar fare hikes took place in 2013, 2014, and 2020," M Jamshed, Former Member (Traffic), Railway Board told Moneycontrol.

Similarly, senior Indian Railways officials said that the marginal hike in passenger fares is part of the overall strategy of the Indian Railways to turn profitable by 2030 and provide better quality services to passengers.

"If you consider the hike for passengers, the proposed hike would mean a Rs 30-Rs 35 increase in fares for a single third AC ticket between Delhi and Mumbai," a senior government official told Moneycontrol.

A parliamentary standing committee in December 2024 had also recommended aligning AC fares with operational costs, citing low-cost recovery and urging a review to reduce losses in the passenger segment.

According to the committee's report, suburban services recover around 30 percent of costs and non-AC travel 39 percent, while AC travel generates only a marginal surplus of 3.5 percent.

As per the committee, to increase the net revenues of the Indian Railways, it is of prime importance to increase its earnings from the passenger segment. The committee, at the same time, felt that ‘General class’ travel must remain affordable for the masses.

Ambitious passenger revenue growth target

As part of the Union Budget 2025-26, the Indian Railways has set an ambitious passenger revenue growth target for the current financial year. While the Railways has projected that its revenue from the passenger segment will rise 16 percent year-on-year in 2025–26 to Rs 92,800 crore, revenue from the cargo segment is expected to grow by only 4.4 percent to Rs 1,88,000 crore.

In 2024-25, Indian Railways served 715 crore passengers, as reported by the Ministry of Railways. This included 81 crore passengers in AC and sleeper classes and 634 crore who travelled in unreserved classes. During this time, the Indian Railways earned Rs 75,750 crore from passenger tickets.

Railway Minister Ashwini Vaishnaw had told reporters on February 1 that the Indian Railways will target to carry around 790 crore passengers in 2025-26.

According to the Railways' estimates, the fare increase set from July 1 is expected to bring in an extra Rs 700 crore for the rest of the current financial year 2025-26 based on the Indian Railways' projection of passenger kilometres (PKM).

While the hike in ticket prices from July 1 will help the Indian Railways take a big step towards its ambitious 2025-26 target, it is still likely to struggle to meet its goals without a substantial increase in passenger traffic.

"Despite the hike in ticket prices, the Indian Railways will find it difficult to meet its stiff targets. Even last year the Indian Railways ended with total earnings below the Budgetary Estimates. Passenger revenue did increase to Rs 75,457 crore, but was still below the Budgetary Estimates of Rs 80,000 crore,” Jamshed said.

Indian Railways is targeting to generate around Rs 37,115.32 crore from AC 3 Tier passengers in 2025-26, which is around 40 percent higher than the revenue generated by the segment in 2024-25 at Rs 30,088.59 crore. At the same time, revenues from the sleeper class passenger segment are projected to fall nearly 6 percent in FY26 to Rs 16,508.55 crore. The national rail generated Rs 15597.18 crore as revenue from this segment in FY25.

Similarly, the national carrier is looking to generate Rs 5,626.01 crore from the AC chair car segment in FY26, about 46 percent higher than the Rs 4280.55 crore earned from this segment in FY25, which seems like an ambitious target.

The rise in long-distance non-suburban train travel is benefiting the Railways. The share of non-suburban passenger traffic is projected to rise to 46 percent in FY26, up from 43.3 percent in FY19.

In non-suburban trains, the number of AC passengers is increasing at a faster pace. AC passenger volumes in FY25 and FY26 are estimated to exceed pre-Covid levels by a wide margin. Given the higher AC fares, the Railways is logically seeing a higher growth in passenger train business revenues.

Indian Railways' passenger traffic is still suffering

The Indian Railways’ passenger traffic, which dropped during the Covid-19 pandemic, has not yet recovered to pre-pandemic levels in 2025–26. Passenger traffic stood at 715 crore in FY25 and 673 crore in FY24, falling short of the 808.6 crore seen in FY20, data from the Indian Railways' annual survey showed.

The Railways had set an ambitious target of ferrying around 830 crore passengers in 2024-25 but did not meet it, and subsequently reduced the target for 2025-26 to 790 crore passengers, which is still below the level seen in FY20.

Indian Railways records since 2011 show that it carried over 800 crore passengers annually for a decade before the lockdown, with a peak volume of 849 crore in 2012-13.  However, since the pandemic, the Indian Railways has seen a substantial drop in non-suburban passengers, with sleeper class travel also declining over the past two years.

Railway Minister Ashwini Vaishnaw on February 1 said the fall in passenger traffic seen by the Indian Railways was due to a change in the lifestyle of Indian consumers and not because of the removal of concession on train tickets.

In December 2024, Vaishnaw had informed the Lok Sabha that the Railways continued to provide concessions to travellers. However, railway ticket subsidies have seen a significant reduction over the years, with the latest figures indicating a decrease of almost 6 percent.

Earlier, the Indian Railways provided concessions in passenger fare to various categories of passengers, including accredited Journalists, Physically Challenged Persons, Patients, Senior Citizens, Izzat Monthly Season Ticket holders, Students, Sports Persons, and War Widows.

However, the concessions for foreign nationals and non-resident Indians have been excluded from the senior citizen category in passenger fare. The Indian Railways also doesn’t provide concessions in trains like Humsafar, Antyodaya, Gatimaan, Vande Bharat, etc.

The re-introduction of train concession for selected categories has been raised several times in the Parliament. Many government officials have urged the Indian Railways to reinstate concessions on train fares for journalists, senior citizens, and other categories, including the Izzat Pass for poor skilled workers travelling up to 100 km by train, as was previously the practice.