Budget 2021

‘Railway freight traffic is more price-sensitive’

The Railways has been using hike in freight rates as a tool to cross subsidise the passenger fares.  

A day after freight rates were increased on select commodities and passenger fares left unchanged in the railway budget, the Economic Survey for 2014-15 said freight traffic is more sensitive to price changes than passenger traffic.

It also said there is potential for price discrimination among different class of passenger and freight types.

The Railways has been using hike in freight rates as a tool to cross subsidise the passenger fares, thereby, losing share to other modes of transport.

The Survey document, citing reports, said the share of the Railways in freight traffic will come down to 25 per cent by 2020, from 33 per cent in 2011-2012.

The Survey used the principle of elasticity of demand or in other words demand sensitivity to price changes to demonstrate the differences in various types of passenger and freight traffic.

The metric showed freight traffic at 55.4 per cent was more sensitive to price changes when compared to passenger traffic (at 14.4 per cent).

Within passenger traffic categories, upper-class passengers are less price sensitive (at 9.8 per cent) and may be better placed to internalise prices hikes vis-a-vis other passenger classes, the Survey document said.

It also pointed out that that cross-elasticity of civil aviation traffic to changes in railways prices is at 5.7 per cent which indicates that upper class passengers do not easily switch to airlines as a response to hikes in railway prices.

Similarly, in freight categories, petroleum products are observed to be very price sensitive (91.4 per cent), while iron ore (17.9 per cent) on the other hand does not easily respond to price changes, it added.

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Printable version | Nov 27, 2021 4:35:36 PM | https://www.thehindu.com/business/budget/%E2%80%98Railway-freight-traffic-is-more-price-sensitive%E2%80%99/article10700086.ece

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