Railways may hike passenger fares by 8-12%, mid-year

In an unusual move, the railways are likely to effect a mid-term rise in passenger fares. The railway board has sought the political go-ahead for a hike of eight to 12 per cent.

Railway board chairman Vinay Mittal has written to railway minister Dinesh Trivedi, seeking a fare hike to address earning concerns.

The railways may require Cabinet approval for the proposal once the minister clears it.

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They need parliamentary approval for the Budget but not for fare rationalisation, as the board has been in existence since prior to independence.

"It is the prerogative of the railway board to decide about the rationalisation of passenger fares and freight rates but due to populism, a decision has been withheld for the last eight years," says a senior railway board official.

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Besides the fare hike, the Railways could also pass on the burden of 10 per cent service tax to the commuters if the finance ministry does not extend the current exemption, which expires in November.

The pressing need to increase fares arises from a decline in the Railways' "investible surplus" over the years.

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The Sixth Pay Commission had entailed an additional outgo of Rs 74,000 crore (Rs 740 billion) in arrears.

Passenger fares are decided according to the distance travelled and freight rates are decided proportionately to the tonnage and rationalised according to the market sensitivity of the goods.

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The official says till now, passenger fares and freight rates have not been rationalised according to the WPI (wholesale price index).

The Railways lose Rs 20,000 crore (Rs 200 billion) in the passenger fare segment on a yearly basis.

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Earnings from freight traffic are used to cross-subsidise passenger fares.

At the time of the Budget in February, passenger earnings for 2011-12 had been estimated at Rs 30,456 crore (Rs 304.56 billion) as against Rs 26,126 crore (Rs 261.26 billion) shown in the revised figures for 2010-11.

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By contrast, freight earnings were estimated at Rs 68,620 crore (Rs 686.2 billion) in the current year (more than double the earnings from passenger fares) after an increase of nearly Rs 5,000 crore (Rs 50 billion) over the previous year.

According to the latest figures on traffic earnings, the total approximate earnings of the Indian Railways on an originating basis during the first four months of the year were Rs 33,134.31 crore (Rs 331.34 billion).

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The Railways run 10,500 trains and ferry nearly 22 million passengers every day.

Fares were last hiked in 2002-03, when the minimum fare for second-class mail and express trains went up from Rs 15 to Rs 16.

During Lalu Prasad Yadav's regime as the Railway Minister in the first tenure of the United Progressive Alliance government, passenger fares were marginally reduced for three consecutive years.