The passenger segment of the Indian Railways is taking a route towards premiumisation. The near-doubling of the per-passenger revenue in the past six years coupled with the production of more premium coaches and launch of new high-end trains in the same period show that the railways are offering premium services to the passengers at a higher price, which is remunerative to it.
This has helped reduce the cross-subsidisation of freight by the passenger segment to some extent, without drawing flak from political circles with announcement of across-the-board fare hikes.
For instance, the transporter has been gradually ramping up the production of 3rd AC, AC 3 tier economy, 2nd AC, 1st AC coaches where the fares are generally higher than non-AC classes. At the same time, the production of low-value sleeper and general coaches have been going down.
Take the case of 3rd AC and AC 3-tier economy segments. In 2019-20, the three coach manufacturing units of railways – Integral Coach Factory (Chennai), Rail Coach Factory (Kapurthala) and Modern Coach Factory (Raebareli) – produced just 997 coaches in 2019-20. This has been increased to 2,571 in the projected estimates for 2024-25. The production for sleeper coaches has been slashed by 86 per cent in the same period – from 1925 in 2019-20 to 278 in 2024-25.
Even as the production of high-value coaches has jumped, the per passenger revenue has moved up too – from Rs 62.66 in 2019-20 to Rs 107.15 in 2024-25.
“The railway capex has risen at a quick pace in recent years. Not just adding more lines, the government is producing more AC trains on the shop floor. The rise in per-passenger revenues is because the fares have increased on several routes in the past few years. The railways is giving more facilities and which is why they are able to charge more per passenger,” said Harshit Kapadia, VP at Elara Capital.
Adding more AC coaches per train translates into better yields per trip. For example, a sleeper class ticket between New Delhi and Kolkata costs just Rs 635 on Poorva Express as compared to Rs 1,665 that a passenger has to shell out for AC 3 tier ticket.
In the recent interim budget, the finance minister Nirmala Sitharaman had announced that the government will be convert 40,000 regular bogies to match the high standards of the Vande Bharat Express. There are 41 Vande Bharat trains operational currently, and the plan is to have over 800 of them running by 2030.
Experts said that the move towards premiumisation will enable the government to reduce its subsidy towards the passenger segments. At the moment, the government is giving 55 per cent concession on every passenger ticket sold. This concession is funded by the profitable freight segment.
“We don’t expect the rise in the passenger revenues and the aggressive addition of AC coaches to improve the financial situation of the passenger segment. It will continue to remain loss making,” said an analyst with a brokerage firm.
