Price rationalization of Indian railways

Abstract

The Indian Railways plays a vital role in boosting the performance of the economy. But such an important organization has suffered from chronic under investment that has stunted its expansion and modernization. In search of newer avenues to raise funds, the Indian Railways is looking to capitalize on market borrowings and public private partnerships. While the latter is good, the former comes at a cost that will adversely impact their already struggling operations. Using Internal Resources, which is the railway’s own excess earnings, for asset creation is the most sustainable way ahead. But for this, the railways have to shed the tag of a welfare organization to a certain extent and rationalize its passenger tariffs. In this project, we looked at two possible alternatives to the current fixed tariff regime – dynamic pricing and inflation indexed pricing. The basis of adopting dynamic pricing was that different prices could be charged to different classes of consumers who had different levels of willingness to pay to maximize revenue. The basis of Inflation indexed pricing on the other hand was the price would follow a rise or fall in cost thus passing on the maximum benefit to both the customer and the service provider. Based on our analysis of the consumer profiles and a comparative analysis with ticket prices in the USA, we came up with the following recommendations: • Immediate implementation of Dynamic Pricing in AC coaches of all high speed trains (Rajdhani/Shatabdi/Duronto): This was backed by the similarity of consumer profiles travelling in high speed trains and economy class airlines and high occupancy rates in these trains. • All the Tatkal seats should be made dynamic in all the trains : This is attributed to high demand for Tatkal tickets in most of the trains. • Linking Suba urban and Sleeper class tickets to Consumer Price Index: The rate of increase in Suba urban and sleeper class ticket prices has been very slow and needs to be revised in a way that it does not affect the passengers much but at the same time, be a substantial source of revenue for the railway. • Phase wise implementation of dynamic pricing to all AC coaches in Mail/Express trains between selected metro cities in the long run.