Bold moves, smart timing on rail fares, diesel proposal

January 10, 2013

(Any opinions expressed here are those of the author, and not necessarily of Thomson Reuters)

The railway budget in India is usually presented in parliament a few days before the main budget in February. In a rare move, the railways minister on Wednesday announced an across-the-board increase in passenger fares starting Jan. 21, the first such step in nine years.

The increase is significant. A ticket for an air-conditioned coach with three-tier sleeping berths in a mail or express train from New Delhi to Mumbai will cost 1,205 rupees, up 13 percent from 1,065 rupees.

Former railways minister Mamata Banerjee and some political parties panned the government’s move, but reactions have been muted among the media and the public. There was little criticism even on Twitter, with the fare increase not making it to the day’s trending topics.

It seems that the government timed its announcement perfectly. Here’s why:

The Indian media is preoccupied. Be it legal proceedings in the Delhi gang rape case or the border skirmish between India and Pakistan or the arrest of Muslim leader Akbaruddin Owaisi for hate speech — the media has a lot to do. It’s the best time to ensure the railway fare increase is not overplayed in newspapers and on television screens, unless politicians take it to the street.

Media coverage was muted on Thursday morning. No television news anchors were crying themselves hoarse on how the common man would no longer be able to afford train travel. Nor did newspapers oblige.

It’s not just smart timing. Politically, the UPA government seems to be aggressive in pushing through its economic agenda. Though Manmohan Singh’s government has been reduced to a minority, its recent victory in both houses of parliament over the question of foreign investment in retail and the Trinamool’s failed attempt to bring a no-confidence motion, boosted its confidence.

Last year, Railways Minister Dinesh Trivedi proposed raising fares in his budget speech. But he was forced to resign after his own Trinamool party, then an ally in Singh’s government, objected to the proposals.

There is also a revenue angle. The government says the fare increase will yield 66 billion rupees a year. But with the fare increase applicable from Jan. 21, it would bring in 12 billion rupees before the financial year ends on March 31. That’s good news in an economically difficult year.

On Wednesday, sources told Reuters that the oil ministry has made a proposal to raise diesel prices at the rate of 1 rupee per litre every month.

It’s also a bold move. Deregulating diesel prices or raising them sharply is politically dangerous, and produces prolonged media coverage, mostly reflecting the ire of the common man. Announcing that prices will be raised gradually softens the blow and makes the increase tolerable.

Both announcements make perfect sense for India’s economy at this stage. With growth slowing and the fiscal deficit ballooning, India still risks losing its investment-grade rating. On Tuesday, rating agency Fitch reiterated its “negative” outlook on India, citing concerns on slowing growth and an uncertain fiscal outlook.

The return of P. Chidambaram to the finance ministry and bold reform moves in recent months has boosted market sentiment to some extent. But as The Economist argues, it may not be enough. Having said that, these small, well-timed steps, can go a long way in raising morale in a tough economic environment.

(You can follow Aditya on Twitter at @adityayk)


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Probabaly, the increase in costs do ceratinly call for a hike in fares, but apart from the increase in the number of trains and reduction in turnaround time, Railways, as national monopoly, must put in far greater efforts in optimal utlization of resources. In fact, it would be a great idea if it shares with its custiomers what it had internally planeed and how they have fared in terms of the customer related performance indicators.

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