Indian railways, which is about to lose its special status of being the only ministry that gets to present its own budget in parliament, has perhaps done a good turn to the civil aviation ministry, or more precisely the domestic airline industry.
Railway Minister Suresh Prabhu is known for his dynamism. He is working relentlessly to get rid of the slothful image of the behemoth which, despite being the world’s largest people mover, is decades behind in innovation, technology and of course services.
The reasons are not far to seek though. Indian railways has been the prime example of Nehruvian socialism and the spirit has endured even half a century after the death of the first prime minister.
So you can travel from New Delhi to Thiruvananthapuram, a distance of 2,892km, for as low as Rs915, that too in the sleeper class. An ordinary second class ticket without the sleeper facility will cost just half or even less. Yes, it will take the better part of two days and two nights, but you will be hard-pressed to find a cheaper rail ticket anywhere in the world!
Of course, the fare goes up if you opt for air-conditioned travel and the comforts thereof. Nevertheless train travel in India is dirt cheap.
A long line of socialist-minded railway ministers from eastern India, especially from Bihar, had seen to it that the railways remained the poor man’s major transport option. Nothing wrong with that.
A country of a billion-plus people with a per capita income of a little more than Rs17 a day (1990) will have to make do with such facilities as are affordable. So, instead of improving the in-train services and speed of the rolling stock, these ministers cut whatever corner possible in order to keep the fares low. If trains run late by several hours, so be it, as long as they run.
But the economic liberalisation under then prime minister P V Narasimha Rao changed the income levels of millions of Indians for the better (Rs230 per person per day in 2014-15) and, as a corollary, travel for business and pleasure received a major boost.
People’s aspirations and expectations also leaped skywards. While comfort became one of the priorities, the need for speed turned out to be the deciding factor.
A host of private airlines took to the skies. Air India, which till then had a monopoly, was relegated to the third place behind Indigo and Jet Airways as, much like the railways, it fell short in innovation and services although it could not have afforded the luxury of neglecting technology.
During his campaign for the 2014 Lok Sabha elections, prime minister-hopeful Narendra Modi had time and again pointed out that the railways required largescale revamping, including privatisation because, as a public sector monopoly, it will remain a major drain on the exchequer, something that India could ill afford.
But promises made during poll campaigns more often than not get side-tracked when parties get into the hurly-burly of governance. The privatisation efforts fell victim to practical exigencies and labour resentment. But Modi seemed to have realised that if he could not privatise the railways and make it profitable and competitive, he should at least try to provide better services and earn people’s trust.
He had talked of introducing the bullet train which, he expected, would give Indian railways that much-needed shot in the arm.
But his chosen minister, Sadananda Gowda, was hardly up to it. Not only did he lack ideas but lawyer-turned-politician Gowda seemed to prefer to work from his home city Bengaluru rather than be in the thick of things in the national capital. It did not take long for Modi to replace Gowda with Suresh Prabhu, a chartered accountant who is better suited for number-crunching.
His two budgets stand testimony to the fact that Prabhu knows how best to get the right numbers.
Naturally the dynamism of the minister has to translate into the lower echelons over time. Prabhu has grand designs for his charge. Apart from bullet trains, planning for which is already much advanced, Prabhu is leveraging thousands of acres of prime real estate that is in the possession of the railways. But he is aware that raising passenger fares to even part finance those designs would be counter-productive because it will be seen as anti-poor.
Not even Prime Minister Modi would agree to such a move. So he came up with the next best thing, dynamic pricing or, in the Uber parlance, surge-pricing.
Tickets for three high-profile trains - the Rajdhani, Shatabdi and Duranto expresses – that run the length and breadth of the country are now being sold under the surge-pricing scheme which envisages up to 40% rise in ticket prices during peak demand.
The results, according one senior railway official, has been quite encouraging. In the first two days since the new policy was implemented, more than 50,000 tickets have been sold at higher prices bringing an additional Rs16mn to the railways’ coffers.
Prabhu has been careful to restrict the new pricing policy to the three trains because all of them are fully air-conditioned and are mostly used by the middle class or lower middle class.
The less privileged travel in slower, ordinary trains that offer cheap tickets. The move did elicit some protest from the Congress and the Aam Aadmi Party but they could not sustain it because Prabhu had left the poor man’s trains untouched.
There have been objections in some pink papers that Prabhu was exploiting a monopolistic situation by under-investing in capacity and creating a systemic shortage. But the railways have been heavily dependent on federal financial support as its own income-generating capacity is highly shackled. How can internal revenues be improved if ticket prices cannot be increased? And if the interests of the poor have to safeguarded, then the rich will have to pay. Something has got to give and Prabhu has taken the safer route.
This is not to say that surge-pricing will cure all the financial ills of railways. The additional revenue will only be a small fraction of the huge turnover of Indian railways. Its 12,500 trains move as many as 23mn passengers every day. The daily receipts from passenger and freight traffic is close to $70mn.
The new pricing mechanism could at best bring in another million dollars a day during peak season. But when you are looking to finance massive development projects every bit counts.
The advantage for Prabhu is that the “peak season” for these trains lasts almost the entire year. Because of India’s varied climatic patterns from north to south and east to west and because there is always a religious festival or an auspicious week happening somewhere or the other almost throughout the year, the trains get filled up without a hitch. While a portion of business travellers may have graduated to flights, India has enough of them still left to take the trains. All these add up to make sure that Prabhu’s efforts at generating extra revenue do not go waste.
That said, Prabhu may have inadvertently given a leg up to the airlines as well. There is serious competition among the five or six major airlines on the domestic routes. Like the railways, India’s air travel too is one of the world’s cheapest. But unlike the railways, the peak seasons for the airlines are few and far between when fares can go through the sky. But every peak season is followed by a near-dry season when fares hit the rock bottom and often-times are cheaper than train tickets.
With surge-pricing this can be a permanent feature. A Delhi-Mumbai ticket on Air India, if booked at least 15 days in advance, could be around Rs2,870 while the same journey by Rajdhani under the surge-pricing scheme could cost as much as Rs4,054. But one must hasten to add that this is on normal days. Peak season air tickets between the two metros could cost anything up to Rs30,000.
But as one railway official put it, “not more than 10% of our traffic will opt to fly. That’s nothing when we have a wait list of 400 for the Mumbai Rajdhani almost every day.” No problem if there is plenty!