Evaluation of the Impact of the Flexi Fare on passenger traffic and revenue of the Indian railways

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Abstract:-

In 2014-15, Indian railways (IR) passenger business incurred a loss of about INR 33,000 crores as a result of its social service orientation. [1] The total revenue generated by  passenger business was around INR 49,000 crores. Hence, the above loss amounted to around 67% of its passenger revenues. This meant that for every 1 Rupee earned in its passenger business, IR ended up expending Rupees 1.67. As a part of exercise to arrest the loss, the Ministry of Railways introduced a flexi-fare system for certain categories of trains. Under this system, the base fare for Rajdhani, Duronto and Shatabdi trains will increase by 10% with every 10% of berths sold, subject to a ceiling of up to 1.5 times the base fare.  While this could also be a way for Railways to improve its revenue, it has raised concerns about train fares becoming more expensive. This paper aimed to study it's impact on the Indian Railway's revenue and passenger traffic. The Results shows that Indian railways need to rationalise the flexi fare scheme. 


Introduction:-

On  07-September-2016, the Ministry of Railways decided to introduce the flexi fare system for Rajdhani/Duronto and Shatabdi trains. [2] 

The Base Fare for Rajdhani, Duronto and Shatabdi class of trains will be on flexi fare system.

The base fares will increase by 10% with every 10% of berths sold subject to a prescribed ceiling limit as indicated in the table below. There will be no change in the existing fare for 1AC and EC class of travel. In the tables given below ‘X’ stands for the present base fares.

( Source - Public infromation bureau)


 Methodology:-

Flexi Fare was introduced in the September 2016. To Find out it's Impact on IR revenue and passenger transport, I Have studied the revenue generation and passenger traffic of before and after of this policy. Therefore, I select 90 days period of the January to March 2016 and 90 days period (Where Normal Tariff was charged ) and another 90 days period of the January to March 2017 ( Where Flexi fare was charged). 


Literature Review:-

Prachee Mishra in her study  "State of Railway finance" (2018) analysed the changes taking place in the share of the railways in freight transport in India, Operating ratio of the passenger and freight transport etc. This paper notes that the share of railways in total freight traffic has declined from 89% in 1950-51 to 30% in 2011-12.

Bibek Debroy and Kishore Desai in their paper "Reviewing the Impact of “Social Service Obligations” by Indian Railways" studied the impact of the social obligation of senior citizens, Students, season pass etc. On the IR's revenue.


Data Collection:-

Indian Railways maintained the train wise data. They provided me in the same format. It's Very bulky data. I scrutinize the data and from that and use the data for the months of January, February and March of year 2016 and 2017. Here is one example.
Howrah - New Delhi Duronto Express.
Earning in Lakhs
2016
Jan
Feb
March
1A
6.2
6.26
5.83
2A
11.02
9.99
10.889
3A
55.07
52.71
49.69
2017
Jan
Feb
March
1A
4.69
4.93
6.01
2A
10.18
9.47
12.7
3A
65.71
58.49
68.49
Seats
2016
Jan
Feb
March
1A
153
156
148
2A
436
405
422
3A
2715
2661
2483
2017
Jan
Feb
March
1A
138
133
165
2A
341
322
402
3A
2646
2371
2776


Sample

I select  9 trains in such manner that cover at least 1 train from each part of India. I chose 6 Rajdhani and Duranto trains and 3 Shatabdi trains. 

Rajdhani & Duronto :- 1AC , 2AC and 3AC 
  1. East - 12273/Howrah - New Delhi Duronto Express.
  2. North - 12425 JAMMU RAJDHANI
  3. South - 12433/Chennai - Hazrat Nizamuddin Rajdhani
  4. Centre - 12441/Bilaspur - New Delhi Rajdhani Express
  5. West - 12951/Mumbai - New Delhi Rajdhani Express
  6. West - 12957/ Ahmedabad - New Delhi Rajdhani Express
 Shatabdi - EC and CC class 
  1. North - 12017/New Delhi - Dehradun Shatabdi
  2. South- 12027/Chennai - Bengaluru Shatabdi
  3. West - 12009/Mumbai - Ahmedabad Shatabdi
Calculations :-

I find out the change took place in the revenue generation and passenger traffic for the railways train wise, Monthlies class wise ( i.e 1A, 2A , EC etc.) after introduction of the flexi fare. Then sum up the change in revenue and traffic of the 6 Rajdhani/Duronto and 3 Shatabdi trains to find out the impact of the flexi fare on the various classes of the trains.

I made calculations to find out the following four things:-
  • Average % Change in traffic of Rajdhani and Duranto (R-D)
  • Average % Change in revenueof Rajdhani and Duranto (R-D)
  • Average % Change in traffic of Shatabdi (S)
  • Average % Change in revenue of Shatabdi (S)
  
Average %  Change in traffic of (R-D)
1A
4.01
2A
-9.02
3A
8.90
Average %  Change in Revenue of (R-D)
1A
4.46
2A
19.77
3A
34.63
Average %  Change in traffic of (S)
EC
6.15
CC
-2.45
Average %  Change in revenue of (S)
EC
8.37
CC
19.28




Finding from the study





>  Passenger traffic increased in the 1st AC and EC ( Executive chair) by 4.0% and 6.15% respectively where there is no Flexi fare applicable and so the revenue increased by similar percentage.


> In 2nd AC, where flexi fare was introduced, Passenger traffic decreased by 9% but revenue increased by 19%. 

·        This change May be attributed to the fact that, After the flexi fare, the tariff of the 2nd AC reach near to the Economy class journey of the Air journey.

> Passenger traffic increased in case of 3rd AC overall by 8.90% and revenue generation increased by 34.63%.


> For the CC (Chair car), Pattern emerge similar to the 2nd AC. Passenger traffic decreased by 2.45% but revenue generation by 19.28%.


> Overall, Revenue Generation increased for the railways in all 5 types of the Journey.


References:-

[1] Bibek Debroy and Kishore Desai.Reviewing the Impact of “Social Service Obligations” by Indian Railways ;2018


[2] Commercial Circular No 46 of the 2016 of the Ministry of the Railways, Government of India.

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Postscript
I write this paper on 12th June 2018. Later In July 2018, Comptroller and Auditor General of India ( CAG) Published report on the Felxi fare of Railways with Title "  Report No.5 of 2018 - Compliance Audit on Union Government (Railways) year ended March 2017" In This, CAG conclude the Similar what I conclude. 

Credit - Scroll


Some Media Reports :- 

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