. First and the foremost reason for this is the high cost of rail movement arising out of policy of cross subsidization by IR. Passenger fares especially sleeper class are underpriced and made up through increased freight fares. In India, passenger rail fares are highly politically sensitive. However, this is also because of the social responsibility character of IR. At the same time, actual cost should be recovered. If fares are to be kept low, efforts should also be made to bring down costs at the same time. If passenger fares are to be lower than costs, then the difference should be recoverable from the government and not from freight charges.
According to the figures compiled by the World Bank, the freight rates charged by IR are extremely high compared to major freight railways such as US Railroads, Chinese and Russian Railways. In fact, the rates of US Railroads are only one-fourth of that charged by IR. Germany is the only country which has freight charges higher than India, but it is nor among the major railway freight movers globally.
Second reason is that over 60 per cent of the freight movement is through electric traction which has high initial capital cost and also high overheads, resulting in higher cost for freight movement. There has always been a debate around diesel versus electric traction. However, there has been no empirical evidence found over superiority of electric over diesel traction. It has been established that initial capital cost of electric traction is manifold more than that of diesel traction. This becomes more relevant in the case of India as it is deficit in power and electric traction of the railways will always get priority over the other users. The only positive factor is that it does not have variable price like that of diesel. The other point in this is the diesel and electric traction cannot be seen as alternates but as complements and a mix of say 50:50, given the vulnerability of supply and prices 
of imported crude petroleum.
One method of distribution is to allocate passenger traffic for electric traction and freight traffic for diesel traction. Allocating specific operational and geographic areas to either mode is another method. The objective is to give equal importance to both the modes.
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