Many lives were lost in a major railway mishap in Madhya Pradesh as a consequence of flash floods washing away the track.

Such incidents reflect the lack oftechnological upgradation in therailways.It is well known that Indian Railways (IR) has been suffering from resource constraints and has been making efforts, especially in the last few months, to explore avenues to raise funds externally in the absence of internal resources. This would only increase the interest burden and therefore, exploring internal sources would be helpful.

Lagging behind The reason for insufficient internal resource generation is that revenue growth has not been able to keep pace with the growing operating expenses.

For example, the average wage of a railway employee has increased approximately 466 times between 1950-51 and 2013-14 whereas the revenue per passenger kilometre and per tonne kilometre have increased only 22 and 46 times, respectively, during this period. There is certainly a need for innovative means to reduce costs and generate revenues.

The operating ratio of IR was high, at 93.6 per cent in 2013-14. There was a spike in 2009-10, from 75.9 per cent to 95.3 per cent, due to the Sixth Pay Commission. Staff costs comprise 54.5 per cent of the total expenses. So, any effective reduction in costs has to be accompanied by a major revamp of the organisational structure. An alternative would be to rationalise the price structure.

Passenger fares currently are highly subsidised and IR has traditionally been cross-subsidising passenger fares with its earnings from freight, leading to an adverse impact on the freight segment of operations. While the total number of passenger train km is 63 per cent of total passenger and goods train kilometres, the revenue generated by passengers is a mere 26 per cent of the total. Consequently, the railways have been losing their share in freight traffic to roadways; therefore freight rate needs to be carefully handled.

Fare revenues On passenger fares, there are two ways of raising revenues. First, IR can take advantage of different classes of passengers by adopting dynamic pricing. In December 2014, there were 197 premium trains using dynamic pricing with many earning 40 per cent more than normal trains.

The launch of premium tatkal facility being priced dynamically since October 2014 is another strategy. In June 2015, IR announced that Suvidha trains with an advanced reservation period of 10 to 30 days, would charge a premium over base fare and tatkal charges.

Initially, to augment resources, IR could begin dynamic pricing in high-speed trains like the Rajdhani, Shatabdi and Duronto. In the second stage, dynamic pricing could be implemented for all AC classes in all express/mail trains.

In 2013-14, suburban passengers accounted for 54.2 per cent of the total passengers and suburban passenger km were 14.5 per cent of the total passenger km.

But interestingly, this segment contributed only 6.1 per cent of the total passenger revenue. The minimum fare for a general ticket has increased by just one rupee from ₹4 to ₹5 after the last hike in 2002-03. To recover cost of operations, suburban fares could be linked to the price index and revised bi-annually.

Rationalising the price structure will provide the necessary finance and probably help to undertake technology upgradation. Hopefully, then, railway travel will be safer with better telecommunication and signalling devices.

Singh is RBI chair professor of economics at IIM-Bangalore. Raju and Agarwal are students at IIMB