With effect from September 1, 2019, the Indian Railway Catering and Tourism Corporation (IRCTC) will charge a convenience fee of Rs 15 and Rs 30 for booking railway tickets online for non-AC and AC classes, respectively. The new fee is expected to boost revenues of IRCTC, which had witnessed a revenue loss on account of the withdrawal of service charges post demonetisation, impacting its top line over the past two fiscals.

The company had earned Rs 362.25 crore as service charges in FY17, prior to the Centre withdrawing the same from November 23, 2016, in a bid to drive digital transactions. While the new convenience fee to be levied starting September is 25 per cent lower than the earlier service charge, it would help bump up IRCTC’s revenues notably in the current fiscal.

 

Earlier levy and subsequent reimbursement

IRCTC levied service charges of Rs 20 per ticket for non-AC classes and Rs 40 per ticket for AC classes, earlier. In a move to promote ‘Digital India’, the Ministry of Railways announced the withdrawal of service charge levied on tickets in November 2016, thus providing a boost to rail e-booking. Consequently, online rail bookings jumped to about 24.7 crore in FY18, with e-booking penetration rising to about 66 per cent from 62 per cent in FY17. Between FY14 and FY19, online rail bookings have registered a 12.5 per cent growth (CAGR) to reach approximately 28.4 crore, with e-booking penetration rising to 68-70 per cent in FY19, as highlighted in the DRHP filed by the IRCTC in August.

While the withdrawal of service charges provided a fillip to online ticket bookings, it led to a revenue loss of Rs 362.25 crore (income from service charges booked in FY17) for IRCTC. Also, IRCTC continued to incur operating expenses such as upgradation and maintenance cost of server, manpower deputed to maintain the server and other incidental costs. Hence the Ministry of Finance, by a separate notification on July 5, 2017 proposed to reimburse IRCTC, until it was able to recover online ticketing costs provided to passengers. Accordingly, the Ministry of Railways reimbursed IRCTC Rs 80 crore and Rs 88 crore for FY18 and FY19 respectively, for its operational costs.

The new convenience fee to be charged by IRCTC would imply no further reimbursement from the Ministry of Railways. The new charge will lead to higher revenues for IRCTC from the current fiscal -- the incremental growth in online bookings would only push revenues higher.

Digital payments

The company, in its draft prospectus, also mentioned that for payments made through the UPI/ BHIM applications, the convenience fee would be Rs 10 and Rs 20 for non-AC classes and AC classes, respectively. Till the software for UPI/BHIM is developed, payment through UPI/BHIM would be incentivised by offering prizes through lottery on a regular basis.

 

Read also: IRCTC files DRHP with SEBI

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