Business gives thumb-up to Trivedi, but will Mamata?

The first passenger fare hike in a decade was welcomed by market and industry observers but it is yet unclear by how much these incremental earnings will benefit the railways and whether the new passenger traffic growth estimates for 2012-13 will actually be met. In 2011-12, passenger traffic growth stood at 5.1 percent against a target of 5.9 percent and the target in 2012-13 is 5.4 percent.

However, the immediate opposition of the Trinamool Congress to the railway budget has cast doubts over whether even the proposed passenger fare hike will be passed by Parliament eventually. Railway Minister Dinesh Trivedi’s job will be on the line if Trinamool chief Mamata Banerjee asks him to either roll back the increases or quit.

Soumya Kanti Ghosh, Director (Economics and Research) at Ficci, said the fare increase did not appear to be too high, and so the incremental revenue generation may remain moderate. But speaking to NDTV, Vivek Mawani of Brics Securities said the fare hike of between 2-30 paise per km translates to a 10-25 percent increase in actual terms and could be fairly steep. “If this is the government’s thinking then further subsidy reduction in the Union budget could be seen,” he said.

Suman Jyoti Khaitan, Senior Vice-President of the Punjab, Haryana and Delhi Chamber of Commerce and Industry (PHDCCI), termed the hike as “reasonable”, saying it could not have anyway been avoided for too long. Abhaya Agarwal, Executive Director & PPP (public-private partnership) Leader, Ernst & Young, commended the railway minister’s decision to increase fares saying this could “increase the average passenger revenues by up to 10 percent and can help in putting railways finances back on the track.”

Ghosh, however, felt that the goals of the railway budget were overambitious. The focus on safety, modernisation and improvement in operating ratio was noble, but the targets were ambitious on several fronts.

“The average increase in gross traffic receipts over the last 10 years has been 9-10 percent, so a target of 27.6 percent increase in 2012-13 could be difficult to achieve. The operating ratio decrease, from 95 percent to 84.9 percent in a single year, also looks tough”.

E&Y’s Agarwal said that a clear commitment on development of high-speed lines within a timeline was expected in the budget, “but may be due to very high costs the minster was restrained,” Khaitan said the railways need to develop innovative public private partnership (PPP) models, specially for trains like Shatabdis, where a significant portion of passengers have the ability to pay more.

In his budget, Trivedi proposed to raise passenger fares across all levels. Fares will be hiked by 2 to 30 paise per km - 2 paise per km in second class and by 5 paise per km in sleeper class; 10 paisa per km for AC third class. This translates to a 5-7 percent hike for sleeper class in the case of Express Trains, a 10 -11 percent hike for AC Three Tier, 12 percent for AC II and 14-15 percent for AC-I.

However, Trivedi said the proposed revisions will only have a marginal impact on fares. The increase in fares for suburban second class passengers travelling 35 km will be only Rs 2. For non-suburban second class ordinary passengers travelling a distance of 135 km, the increase will be Rs 4 only. For second class mail/express passengers travelling a distance of 375 km, the addition to the fare will be only Rs 12 and that for a 750 km journey by sleeper class on mail/express train will be only Rs 40.