Railways to follow Aviation Industry in Fare Structure

The national transporter has engaged the Institute of Chartered Accountants of India (ICAI) – an APEX body of Chartered Accountants, to prepare a Management Information System (MIS) for the project.

NEW DELHI: After the experimental ‘flexi fare’ system which is still mired in controversy, the Indian Railways is now planning to go the aviation industry way. The major tariff structure reform will see the Railways do away with the present system of distance-based telescopic fare  and ‘rationalise’ it by adopting the sectoral and root costing method, done by airliners and in vogue world over.

Under the present system, the fare of a 1000-kilometer journey in Rajdhani or any mail train is the same. But after the new system, the fare for the same distance would vary from point to point depending on many performance indices (PI) including distance, class of stations the trains will pass through among others.

The present traditional telescopic fare structure is a system in which the fare decreases in slabs as the length of the journey increases depending on the category of trains. But as per the planned new fare structure, the fare for a distance of 1000 km being travelled between New Delhi and Patna will vary from a distance of about 1000 km between New Delhi and Nagpur or for that matter Kolkata and Mumbai even if the category of the train remain the same.

“It could either be cheaper or costlier. It will be like the system adopted by the airliners where New Delhi to Mumbai flights are almost half the price between New Delhi and Pune on any flights,” explained a railway official.

The new costing will take into account the cost of total production which means even food and grocery and cost of linens and laundry, which may be cheaper in Kolkata zone as compared to Mumbai zone.  And not only this, the fare will also be based after profitability analysis of each train, category of train and point to point distance.

“Path costing is an important aspect which has not been done ever since the separate rail budget existed. Now with a new pattern, this will bring major changes keeping in mind the benefit of passengers. Similar exercise will be done for freight services,” added the official.

The Railways will switch from cash to accrual-based accounting which gives more accurate financial picture of the organisation. The accrual-based accounting will allow the railways to report segment-wise revenue, helping it know the profitability of different lines of business and services.

Technically, it tracks the entire cost of assets and services delivery and simultaneously ascertains the return on investment for every rupee spent. Through costing techniques, the mammoth organization would be able to identify money makers and money losers.

In the accrual-based accounting, revenue is reported in the fiscal when it is earned, irrespective of when it is actually received, and expenses are deducted when they are incurred, regardless of when they are paid. In cash-based accounting, books are prepared when cash is paid or received.  The national transporter has engaged the Institute of Chartered Accountants of India, the apex body of chartered accountants, to prepare a management information system (MIS) for the project.