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In less than 24 hours of mandating IRCTC to share half of its convenience fee, the Railway Ministry withdrew the controversial decision on Friday morning because its online ticketing arm made a desperate plea that its finances, already in doldrums due to Covid-19 disruptions, would take a massive hit. Government sources said the negative impact of the decision on the share market and the drop in the prices of IRCTC’s shares also played a role in the roll-back.
“The IRCTC approached the Railway Board and requested that the decision to share the convenience fee with the Railways be withdrawn as it would create a big financial mess for them, especially as Covid-19 had already affected them adversely. Moreover, the share market, specifically the share prices of IRCTC, fell further after the decision was announced. The Railway Ministry, therefore, thought it prudent to withdraw the decision,” the source said.
“Ministry of Railways has decided to withdraw the decision on IRCTC convenience fee”, DIPAM Secretary tweeted on Friday.
Immediately after the DIPAM Secretary’s tweeted, the IRCTC share price, which had plunged to a low of ₹ 639 on Friday morning, rebounded within hours to over ₹ 800. Earlier, IRCTC shares had turned ex-split and readjusted on Thursday after the board had approved a 1:5 stock split on August 12 to help enhance liquidity in this counter and make shares within reach of small investors. But, analysts noted that the Ministry’s decision to seek 50 per cent of the IRCTC convenience fee was a big negative for shareholders as IRCTC is likely to lose 43 per cent of its profits due to this scheme of arrangement.
Also read: Govt seeks 50% share of IRCTC convenience fee
Some of them even came out to media houses and TV channels to air their views on how people should be careful in investing their hard-earned money in public sector stocks and not show undue optimism in them, especially when minority shareholders interest in most situations is not considered in policy decisions.
However, it may be recalled that a revenue share arrangement had been in place before the pandemic between the IRCTC and the Railway Ministry. The prospectus filed by the IRCTC ahead of its IPO highlighted the administrative control of the Railway Ministry over its pricing decisions and functioning as a risk factor. “Our business and revenues are substantially dependent on the policies of the Ministry of Railways and operations of Indian Railways. As a CPSE wholly owned by the Government of India and under the administrative control of the Ministry of Railways, our scope of services and the fees we charge are primarily determined by the Ministry of Railways,” said the IRCTC IPO prospectus, listing its risk factors.
Convenience fees charged from customers generate a sizeable revenue for both the IRCTC and the Railways. The fee is in addition to the rail fare and is being charged for the online ticket booking service. But this revenue share arrangement had been discontinued since the pandemic. With the economy rebounding and travel restrictions being eased, the Railway Ministry thought it prudent to re-introduce the revenue share agreement. But it had to be rolled back because of the adverse market sentiment it triggered.