Saturday, June 21, 2014

A finance teacher's view on rail price hike

" The railways can survive only if users pay for availing of facilities." - Arun Jaitley, the finance minister

When the finance minister makes this statement it reminded me of a post from one of my friends from school days who has returned to India after quite some time:
"Having jaw dropping experiences in India every time I go out shopping. Prices of everything have tripled or may be even quadrupled than what it was four years ago. The only solace I have is to convert the prices to USD as opposed to my first trip outside India when I used to convert prices to INR and panic." 
source: Facebook. 

Mortals like me who chose to stay in India do not have the "solace" of converting prices to dollar also. So increase in fares cannot be seen in isolation, we need to look at existing inflation levels and impact of increased rail freight on inflation and growth.
Now being a student and teacher of business models,I know one thing for sure people like to pay a premium only when they are satisfied with the existing services. No one pays premium to support  future infrastructure growth. I have been travelling the length and breadth of the country using railway as a medium of transport extensively for the last two years and these are my observations:
  1. Every second person travelling in Ac 2 tier and every person travelling in AC 1 tier does not pay for the service because either he is a railway employee or he is a politician. These are the compartments where the margins are high and elasticity of demand is also high. Imagine if banks starts giving money to employees without claiming it back and only person taking loans meant to be at higher interest rates are bankers who will never return it.
  2. The quality of service in trains are pathetic. Toilets are never clean. The staff on the train who is supposed to clean the toilets is only seen at the time of collecting tips. The attendants never give towels unless asked by the passenger because if the towels are lost he needs to pay from his pockets.
  3. There are very few trains which run on time especially long distance trains. There is no value for money.
  4. Streamlining of operations with a view to reduce cot is more important than increasing prices.
Here is a suggestion I have for the government:
Please understand that if you want to operate as a company you need to appreciate the fact that government is a conglomerate with a number of Strategic business units.In your case, it is not possible to run all the SBU's profitably

The system needs to be streamlined so that corruption is minimized, if not removed. Inflation stems from inability to develop a proper warehousing facility and  from wasteful government expenditure. I am yet to hear of any concrete steps taken by the government in these two areas. I would also like to know if there is any tax payer whose son goes to a state government school 
(I know centre government cannot do much, but then something needs to be done) or he can even imagine being admitted in most of the government hospitals. Please concentrate on these areas it would help improve the standard of living of the country rather than looking at simplistic measures of revenue generation and then using rhetoric to justify a move that does not make sense.

Disclaimer: This is my personal view