Why government needs to depoliticise rail fare hikes

Railway fares and freight rates should be fixed on the basis of commercial principles, as is done with other transport services.

The government's announcement on Wednesday on raising railway passenger fares for all classes of travel was long overdue.

Basic fares for all categories, except a small segment of upper-class and air-conditioned travel, have remained unchanged for almost 10 years.

As a result, the Indian Railways' losses in passenger operations are estimated to have risen to Rs 25,000 crore (Rs 250 billion) in 2012-13, a fourfold increase over 2004-05.

Cross-subsidisation of passenger fares through increases in freight rates helped only up to a point. That option is now exhausted since competition from other modes of transport has made railway freight rates unviable.

With the Indian Railways' ability to generate internal resources seriously impaired, investments in fresh capacity - and even maintaining existing facilities, including safety measures - have slowed with the curtailment of its annual plan size in the last few years.

The decision to raise passenger fares to garner an additional 20 per cent revenue in a full year will, therefore, come as welcome relief.

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The railway budget for 2012-13 did make an attempt to address such financial concerns with an across-the-board increase in passenger fares, but that initiative became an unfortunate casualty of politics.

Trinamool Congress chief Mamata Banerjee did not approve of her nominee in the council of ministers Dinesh Trivedi's brave efforts at fixing the Indian Railways' shaky finances.

Not only did she ensure that Mr Trivedi resigned as railway minister, but she also got Mukul Roy inducted as the new minister in Rail Bhavan - Mr Roy rolled back most of his predecessor's reformist proposals and allowed only a small increase in fares for upper-class passengers.

When the Trinamool Congress pulled out of the ruling alliance last September, the portfolio returned to the Congress; but there was no immediate indication of whether this would ensure sensible fare and freight policies for the Indian Railways.

That Railway Minister Pawan Kumar Bansal has not shied away from taking a difficult and long-delayed decision augurs well for India's largest transporter of goods and passengers - even though the political wisdom of announcing a steep fare hike in one go is always questionable.

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Smaller doses are usually more acceptable, creating less political resistance.

It is, however, significant that Mr Bansal announced his decision on the fare increase outside Parliament.

Passenger fares have usually been announced only at the time of the annual railway budget presentation in the Lok Sabha.

But it is important that decisions on fares and freight rates for the Indian Railways should be depoliticised.

There is no reason why railway fares and freight rates should not be fixed on the basis of commercial principles, as is done with other transport services.

The government is already discussing the possibility of an independent tariff authority to fix fares and freight rates for the Indian Railways.

Mr Bansal has taken the first step by announcing the fare increase outside Parliament and the annual railway budget.

The next logical step is to set up the tariff authority and vest it with the powers to fix fares and freight rates.