The funding is expected to compensate for the losses faced by IRCTC due to the elimination of service charges on online ticketing services
The finance ministry has decided to spend Rs 120 crore on the Indian Railway Catering and Tourism Corporation (IRCTC) in order to equalise the losses that the railways arm have suffered from the elimination of service charge on online ticket booking in 2018-19. Besides this funding, the finance ministry will also reimburse Rs 88 crore for 2017-18 and has stated that the reimbursements will continue till IRCTC is permitted to demand service charges for its online ticket booking services.
Online ticketing accounts for most of IRCTC sales
IRCTC hopes that the funding by the finance ministry will increase its turnover for 2018-19. The company expects that better turnover will be beneficial for them to work according to the new catering policy announced in February 2017, which gave catering services to IRCTC in order to set up new mechanised kitchens and fixed prices for meals on-board. Of the online tickets booked in Indian railways, 62 per cent comes from the e-ticketing services of IRCTC. The company has claimed to have sold over 5.73 lakh tickets through its website in 2016-17.
A much relief since the demonetisation in November 2016
Following the implementation of demonetisation in 2016 when old 500 and 1000 rupee notes were discarded, the government had asked IRCTC to not charge customers for e-ticketing services with the aim to promote digital transactions. Earlier, IRCTC charged Rs 20 and Rs 40 on every sleeper class and air-conditioned class e-tickets, respectively. For i-tickets (paper ticket booked online), IRCTC charged Rs 80 for sleeper class and Rs 120 for the remaining classes.
In its annual report for 2016-17, IRCTC stated that the withdrawal of service charge on e-ticketing services by the government had accounted for the loss of approximately Rs 220 crore in turnover during the year. This was a huge blow given that the company spends Rs 100 crore every year on its ticketing services including marketing and after sale services. The move also caused IRCTC to lose revenues of Rs 166 crore after the same went down to Rs 466 crore in 2016-17 from Rs 632 crore in 2015-16.
The funding by finance ministry is aimed to help the company recover from these losses. A government official said: “The payment is for compensating for the cost of operations. Though IRCTC had demanded Rs 150 crore, it (cost of operations) has been assessed at Rs. 120 crore for the year.” The official also added that the reimbursement amount will be directly proportional to the cost of IRCTC’s operations, which means that the former will eventually increase as the latter goes up.
Moreover, the elimination of service charge has also taken away the chances of IRCTC to get listed for the last financial year. Due to the absence of an alternative to the withdrawal of service charge, the company also experienced poor valuation.