Indian Railways: The Struggle for Balance Between Social Service and Profitability
Indian Railways, the world’s fourth largest rail network, plays a crucial role in the lives of millions of Indians. It provides an affordable means of long-distance travel, connecting cities, towns, and villages across the country. However, the railways have long struggled to balance their social service obligations with the need for profitability.
In recent years, the railways have made a concerted effort to shift towards cleaner, faster, and more technically advanced trains. This has included the introduction of new classes of trains like the Vande Bharat Express and the premiumization of even non-premium trains by increasing the share of AC coaches. These changes have led to a significant increase in revenue, but they have also raised concerns about the affordability of train travel for the masses.
The railways’ social service obligations are enshrined in the Indian Constitution. The Constitution requires the railways to provide adequate and affordable transportation for all citizens, regardless of their socioeconomic status. However, the railways have consistently struggled to meet this obligation. In 2023-24, the railways’ operating expenses fell marginally short of its earnings from moving passengers and goods. This means that the railways are essentially breaking even, leaving little room for investment in new infrastructure or improvements to passenger facilities.
The problem of overcrowding in Indian trains has always been there, especially during the festive season when millions make their way home to celebrate. However, this problem is likely to worsen in the years ahead. The railways’ own projections show a stronger growth of AC passengers in the years ahead, and a slower growth in the pace of non-AC passengers. This could lead to a situation where the railways are unable to provide adequate capacity for non-AC passengers, resulting in even more overcrowding.
The affordability of AC travel is another major concern. The railways want everyone to shift to AC travel in the future, but this will only be possible if incomes keep pace with ticket prices. If incomes do not keep pace, travelers will be forced to travel in cheaper coaches, which could lead to even more overcrowding.
The railways face a classic problem that many consumer businesses face, which is that a relatively small slice of passengers contribute a large chunk of its revenue. In 2023-24, AC-class passengers (chair car, AC 2-tier and 3-tier, and AC first class) accounted for around 11% of all passengers, but well over 50% of revenue. In contrast, second-class passengers accounted for three-quarters of passengers, but less than a quarter of revenue.
This disparity in revenue is due to the fact that AC coaches are priced much higher than non-AC coaches. The railways have been steadily increasing prices for AC coaches in recent years, and this has made them even more unaffordable for many people. As a result, the railways have seen a decline in the number of non-AC passengers in recent years.
The railways are also facing capacity constraints. The number of coaches available to carry different classes of passengers has not kept pace with the growing demand for rail travel. This has led to a situation where there is a shortage of berths relative to demand, particularly for second-class and sleeper-class passengers. As a result, many people are forced to travel on waiting lists or in overcrowded conditions.
In an effort to address the problem of overcrowding, the railways have been adding more AC coaches to its trains. However, this has come at the expense of non-AC coaches. In June 2022, the Railway Board issued a circular increasing the composition of mail or express trains from eight-nine AC coaches to 15, and reducing the number of non-AC passenger coaches from 11-12 to just five.
This change has been met with criticism from consumer groups, who argue that it will make train travel even more unaffordable for the poor. The railways have defended the change, arguing that it is necessary to improve the quality of service for AC passengers. However, it remains to be seen whether the railways will be able to strike the right balance between social service and profitability in the years to come.
