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The railways' move of imposing a fuel adjustment component (FAC) on passenger fares from October may not hit passengers hard. Under the formula worked out for the levy, the retrospective impact of the increase in fuel costs has been absorbed by the railways.
The FAC for passenger fares would be based on the rise in fuel costs for passengers, which stood at about Rs 7,000 crore last year. This would effectively mean an increase of less than 10 per cent.
FAC is a means to neutralise the impact of a rise in diesel or electricity costs. On April 1, the railways had imposed FAC on freight. This had raised rates by four per cent. Through this, the railways has earned about Rs 3,500 crore. However, the railways has absorbed the increase in fuel costs for the passenger segment (about Rs 900 crore).
In 2012-13, the railways spent about Rs 20,000 crore on fuel. Expenditure on freight and passengers is in the ratio of 65:35. On the methodology of passing the fuel component to the passenger, a senior railway official said, "Based on the cost analysis of each class of passengers for each unit (passenger), we will apportion the fuel increment from April to October."
The impact on passenger fares is likely to be very small, as the rise would be in proportion to the cost of service provided by the railways. As lower classes have lower service costs, the fuel component increment would be less, the official said.
With passenger subsidy already ballooning to about Rs 25,000 crore, the railways' cost of providing passenger service stands at about Rs 57,000 crore. Passenger fares haven't been increased in a decade. In 2012-13, losses from passenger fares stood at about Rs 25,000 crore, against Rs 4,955 crore a decade earlier. For 2013-14, the increase in diesel costs is estimated at Rs 3,300 crore, while the rise in electricity costs is expected at Rs 1,800 crore; overall, fuel costs would rise by Rs 5,100 crore.
While presenting Railway Budget 2013-14, Railway Minister Pawan Kumar Bansal had said, " In the light of deregulation of HSD (high-speed diesel) oil, railway finances need to be rationally insulated and to this end, a mechanism to neutralise the impact of fuel expenses on operating expenses is required to be put in place."
He had said fuel adjustment would be dynamic in nature and could either rise or fall twice a year (April and October), according to the change in fuel costs.
The railways is trying to depoliticise fare fixation by setting up a Rail Tariff Authority and introducing the FAC-fares would be decided outside Parliament, as opposed to the current practice.
In January, the railways had increased fares across all categories by up to 25 per cent.
It had also increased supplementary charges for super-fast trains, tatkal charges and clerkage and cancellation charges by up to 50 per cent.
