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Corporate Jan 9, 2013

Why Pawan Bansal jumped the gun on rail fare hikes

By Sanjay Singh

Railway Minister Pawan Kumar Bansal surprised everybody with the timing of his passenger fare hikes. The decision to raise fares 45 days before the rail budget means there will be no further increases in passenger fares in February, but freight - never a political issue - may still go up.

The fare hike was expected ever since he took charge of Rail Bhawan after Trinamool Congress leader Mukul Roy exited. Ministry officials took pains to explain that a passenger fare hike did not have to wait for the budget in Parliament. It was an executive decision and did not need legislative sanction. They also cited various examples on how fare or freight changes were increased mid-way rather discreetly.

The fare hike was expected ever since he took charge of Rail Bhawan after Trinamool Congress leader Mukul Roy exited. AFP

Bansal announced that since he had now raised fares, there was no need to deal with the issue when presenting the budget in February. But since he has now clearly delinked fare and freight hikes from the budget, ministry officials are not ruling out another round of revisions any time after the presentation of the budget, if warranted.

The timing of the announcement makes it easier for the government to deal with the consequent politics of populism better than if the hike had come with the budget. Luckily, the announcement came just when the media was obsessing over the killing of two Indian soldiers on our side of the line of control and the mutilation of of them by Pakistan.

Moreover, this being the last full budget of UPA-2 before it goes to the polls (nine assembly elections are due this year), the government would not have liked to administer too many doses of tariff increases in various sectors at one go. Staggering the hikes are a better option. There is already too much speculation over the increase in the number of subsidised LPG cylinders from six to nine per year, the monthly hikes in diesel prices, and a widening of the service tax net. Each one will raise political hackles.

The government is under pressure from the party to present a populist budget even while keeping its "reformist" credentials going. The railway ministry's decision today is part of the latter.

Asked why the hikes could not wait till February, Bansal did not have much of an argument. "I spent a month-and-a-half (since the time he became railway minister) in examining the issue. By doing it today we get to earn some revenue in the next month-and-a-half before the budget will be presented. We badly needed resource augmentation for investing in tracks, cleanliness, safety and upgradation. Currently we are not able to do anything." The hike will earn the railways Rs 6,600 crore in a full financial year.

It has been no secret that the PMO, the finance ministry and the Planning Commission had been asking the railways to raise fares and generate much-needed resources to fund various projects. Before Bansal's entry, the PMO and the finance ministry almost had no say in how the railways were run, not to speak of fare hikes. Last year, Trinamool Minister Dinesh Trivedi had to lose his job after he decided to raise fares.

Over the years, the rail ministry has catered to the politics of populism rather than pragmatism. After being controlled by various regional partners in successive coalition governments, command of the ministry has returned to the Congress after 17 years. Bansal has made a beginning to set rail finances right. More should be coming from him in the near future.

by Sanjay Singh

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