Why the Indian Railways’ dynamic pricing system is a step in the right direction

The government’s decision to introduce a dynamic pricing system on Rajdhani, Shatabdi and Duronto trains is a step in the right direction. The announcement – under which base fares will jump by 10% for every 10% berths sold in AC-II and AC-III compartments on these trains, with a cap of 50% hike on the original fare -- seeks to address the “fare versus freight” distortion of the Indian Railways. On account of the “populist” moves, the finances in the sector have remained perennially caught up in a ’Catch-22’ situation of sorts -- with freight earnings continuing to be diverted to subsidise passenger fares. Annual losses in the passenger segment -- or what is called the “social sector obligations” of the Indian Railways -- have, however, remained out of control. Policy makers have refrained from hiking fares of the unreserved general class of passengers who constitute 95% of the total of 23 million people who travel on the 65,000km network of the Indian Railways.