By Dr D M Deshpande

The Railways have introduced surge prices in select trains-Rajdhani, Doronto and Shatabdi. Though there is a cap of 50%, there are reports that the fares of Rajadhani fares went up by 30 to 40%.

The Railways have erred in principle in levying flexi passenger fares; in practice too, Railways will lose more than the possible gain out of this pricing exercise. Additional revenues projected for this fiscal are no more than Rs 500 crore, not enough to make any serious dent to burgeoning passenger subsidy bill of more than Rs 30,000 crore every year. To sustain this, the freight rates have been jacked up from time to time to uncompetitive levels leading to diversion of goods traffic to roads.

As a concept, surge prices have come to stay and they are in vogue in several sectors-in airlines, passenger buses, taxi aggregator’s services and sale of movie tickets.

Dynamic or flexi-pricing simply tries to match supply with demand. In the business of taxi aggregators, it will ensure more cabs are incentivised to go to places where there is a ‘surge’ in demand.

In all these cases, operators are in competitive market conditions, in fact, in some cases, competition is cut-throat. However, Railways in India are in a monopoly market situation and hence in principle they are wrong in levying surging prices. They cannot meet the peak demand because Railways have under-invested and fall short in requisite capacity. It is wrong and unethical to hold passengers to ransom for a failure which is primarily of the Railways.

Principle or ethic apart, Railways ought not to go in for surging prices, purely on economic or commercial considerations. The Railways have chosen upper class tickets for surge pricing; already the price of these tickets are close to fares of some airlines.

A section of passengers have been driven to take the air route, for, the price differential is either non-existent or it is barely significant! What the surging prices will do is to give a further boost to this momentum thereby hurting the cause of Railways.

The Railways aim to increase revenues, which is fine, but not by resorting to dynamic pricing method. Passenger fares are grossly underpriced across all classes; there is no relation at all to the cost of rendering the service. If this has to be corrected, all passenger fares, including the sub-urban travel, have to go up.

In FY 16, nearly 55% of the total passengers travelled in sub-urban trains, but contributed only 5.7% of the passenger revenues. On the other hand, just 0.3% passengers travel by 1st and 2nd. AC class, but accounted for 8.7% of the passenger revenues.

Raising passenger fares is believed to be difficult politically. Hence, the establishment of an independent tariff regulatory authority brooks no further delay. This will pave way for transparent and rational fare fixing and revisions from time to time.

It will be seen to be a third and an independent one; and its tough decisions will not be linked to that of the government of the day.

There is also a need for the Railways to shift to a method of direct delivery of subsidy that is targeted to only the deserving people. The resulting efficiency gains will actually help Railways becoming more competent in serving both goods and passenger traffic.

In a rising India, there has been shift from price to quality. Passengers do not mind paying higher prices for commuting in Metros.

Similarly, in high end bus travel, passengers do pay premium price for the service, comfort and saving in travel time.

Without pricing reforms, it will be difficult to garner fresh investment in Railways. And by corporatising Railways, large scale private investment can be attracted. The Dibrek Roy’s panel has suggested splitting Railways into two entities, one for tracks and infrastructure and the other for operating trains.

Later, private players could be allowed to run trains in competition with Railways with an independent regulator playing the same role as TRAI or IRDA.

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