Surge pricing in railways is Suresh Prabhu’s deliberate self-goal
Union railways minister Suresh Prabhu’s latest move of “surge pricing fare system” is a gambit to reduce finance minister Arun Jaitley’s pain, who looks all set to soon adopt country’s messy public transport behemoth. If everything goes by the plan, the 93-year old Rail Budget would cease to exist from the next financial year i.e. FY 2017-18.
Railways budget is scheduled to terminate on Jaitley’s station with a whopping loss of Rs 34,000 crore in the passenger segment, but the surge pricing-led fare hike will somewhat lessen the pinch for the finance ministry.
That said, in the fiercely competitive passenger transport market, Railways may lose premium passengers to aviation and road sectors, as has been the case with the premium, high-value freight to road carriage, thanks to consistent freight tariff hikes. Despite all the hoopla over change and webcast of rosy reports, the fact remains that railway finances are showing no signs of recovery.
Railway extended its last year’s dismal performance this financial year as well, as freight earnings declined 10.3 per cent in the June quarter. The subdued passenger revenues and massive debt burden gives little credence to the Railways’ claim that a turnaround is just around the corner.
Now, railways is forced to sacrifice its competitiveness to bailout itself from the ongoing financial mess.
Prabhu has in fact milked both of his core revenue streams (freight and passenger) during the last one month in order to shore up the sagging balance sheet.
Premium trains and AC classes are the mainstay of railways’ passenger business as it gives lesser subsidy on these than the general ones. A couple of years back, Railways had started experimenting with dynamic fares in the lines of aviation industry. The experiment was made to encash the peak demand during the festive season. Subsequently, railways introduced “Premium Tatkal Ticket scheme” and decided to sale 50 per cent of the existing tatkal quota ticket under the new scheme.
With a reasonable success achieved in offering dynamic fares in selective trains, railways has now come up with flexi fares and “surge pricing” for Rajdhani, Duronto and Shatabdi trains.
The idea of “surge pricing” may not yield bounties for railways as premium trains are few in numbers. However, this scheme will effectively drive passengers towards the airlines. Prabhu’s strategy may appear self-defeating for railways, but indeed is a deliberate move. The ailing behemoth has no option but to force away its passenger traffic towards other carriers to pull off the reduction in cost and increase in savings.
Same is the story on freight business as well. It was only last month that railways notified 8-14 per cent increase in freight rates for coal and levied coal terminal surcharge at Rs 55 per tonne for loading and unloading, to mop up additional revenue of Rs 1,000 crore.
Railways is prime hauler of coal which accounts for almost 50 per cent of its freight basket. Despite the fact that coal production fell in the month of April on the back of low offtake, railways had to increase coal freight tariff and squeeze its core business to stem the deteriorating financial health.
Railway is fighting its final battle before it becomes the liability of Union budget, with an accumulated burden of a staggering Rs 4,83,511 crore amassed on account of execution of various projects. Also, there remains Rs 30,000 crore liability to meet seventh pay commission awards.
Only time will tell what secret panacea Jaitley may prescribe to railways after rail budget’s merger with the Union budget, however, one can be sure that country’s biggest transporter has no option but to embrace a tough transformation, if Jaitley wishes to contain its mess to spill over to Union Budget.
After all, at stake is his commendable fiscal triumph of FY16.
Article first published at dailyo.in