By Sidhant Srivastava
One of the incipient measures by the new government in power has been a hike in railway fare. The railways recently hiked fares of both passenger fares (14.2%) and freight (6.5%). Two years back, when the UPA government had hiked rail fares, the decision provoked a strong protest in the opposition, spearheaded by none other than our present prime minister, Narendra Modi.
The railway minister back then, Dinesh Trivedi was forced to resign after he hiked the fares.
“We understand that it is a bit harsh to hike the fares, but in future it will only benefit the people and this is something that we cannot play politics with,” present railway minister D Sadananda Gowda said.
Slamming Narendra Modi government over the steep railway hike, Congress accused it of “double speak” and demanded immediate rollback of the fare and freight revision. Kerala Chief Minister Oommen Chandy asked the Centre to roll back railway passenger fare and freight rate hikes as it would lead to rise in prices of essential commodities. If we talk about BJP ally Shiv Sena, it reluctantly accepted the steep hike in railway fares and freight rates and has urged the government that this should be “the final increase”.
“Nobody can deny that rail fares, frozen for the last 11 years, needed rationalization and they were bound to increase. The only issue that we have with this is the timing and manner of the decision,” said a top office bearer of the RSS. “The people should have been prepared for this decision, which is in the country’s interest, but cannot be palatable to the general public,” he added.
For a decade now, railway ministers have been reluctant to increase passenger fares as it is perceived to burden people. But they neglect the bigger picture, the society is the one which has to pay for the entire cost of running any commercial operation. It is a vicious cycle where if the users don’t pay in full for the services they avail, someone else has to so the costs just get transferred and this scheme of hidden subsidies gives the end result of affecting the economy adversely.
Like when the subsidies of rail passengers are borne out of profits made by freight, it pushes up the freight costs so the costs of goods and doing business goes up which in turn hurts job creation. If the cost of coal goes up due to increased cost of transportation then the cost of electricity will also go up (unless even that is subsidized, which will in turn start another vicious cycle), so the end result will be burdened on the final user and the economy.
“There is an urgent need to act and if things remain the way they are, then the situation in the railways would become very worrisome. There are so many pending projects that need urgent completion. People often ask why these projects are moving at a snail’s pace. The reason is simple. There are no funds. As per our records the pending projects are worth Rs 5 lakh crore, but we are able to allocate just Rs 25,000 crore. This only means that the projects are not getting the requisite funds as a result of which they are being delayed,” Gowda said.
Finance minister Arun Jaitley has strongly defended the steep hike in rail fare and freight rates, saying the railways can survive only if users pay for availing facilities. “Passenger services have been subsidized by the freight traffic.
Economist Ashwini Mahajan said that something like this was “required” to rescue Indian Railways. “It is the pride of India, and if you compare fares in India to other countries it is still very low. Fares had not risen in 11 years, whereas fuel costs, wear and tear and modernization costs had gone up exponentially. Was there really a way out?”
The actual worth of this decision will be judged by the way this increased revenue is used. Two years ago a group under Sam Pitroda, appointed by the railways, showed that modernizing is doable in a span of a few years. The modernization project would encompass tracks, bridges, signals, thereby simultaneously improving safety standards.
Gowda hopes to usher FDI into creating the infrastructure for railways. This makes sense, but unless the railways manages its finances better, it is unlikely to attract money from outside.
Sidhant graduated from IIT and discovered his creative bent of mind towards writing after having a near death accident, he had never thought of taking his writing to a professional level. He started blogging just last year, but got an amazing response to his blogs (http://ihavenothingelseto.blogspot.in), he then joined a fashion and lifestyle magazine as the sub editor. He is more than happy to contribute insightful articles on diversified topics to The Indian Economist.