Indian Railway’s dynamic pricing – a step in right direction

Indian Railway’s recently announced dynamic pricing for Rajdhani, Shatabdi and Duranto category of trains. For every 10% filled seats there would be 10% increase in fare with maximum upper limit of 1.5 times of base fare. The move is to garner extra revenue for IR which is highly stressed for revenue. It’s operating ratio is above 90%. For every kilometre IR spends 73 paise and in return it receives 37 paise from passenger.
IR is cross subsidising cost of passenger revenue from what it earns from goods trains. IR has one of the highest rates for cargo transportation in the world. Further increase would also make it uncompetitive against road transport. So increasing passenger fare is necessity. Dynamic pricing is currently introduced in premium trains only. These trains are used by people who are relatively well off and have capacity to pay more. This is a case of misallocation of subsidy. Subsidy should be provided only to needy not everyone.
Extra revenue would allow IR to improve it’s infrastructure, invest in safety and security systems, introduce more trains and increase connectivity across the country. Recent anecdotes of passengers telling remarkable change in IR where there grievances have be resolved by just tweeting, improved cleanliness and polite staff shows IR has potential to provide world class facilities and services. This would require investment. For this who can afford should not mind paying more.
Dynamic pricing experiment is a right step in the direction of future.