Every class have their pros & cons, after paying 1AC class hefty fare 10 out of 9 people prefer air travel in long journeys which is time saving compare to railways. Everybody is not a railfan and enthusiast.
In short journeys 500-600 km. bracket make passengers travel by road in their own vehicle due to expanding highway connectivity, improving road conditions.
Due to...
more... these circumstances IR not able to increase fare of 1AC class, and providing free passes make this situation even worse. I am not against this class but the shortcoming of revenue loss make this class IR to think about it and that's why in VB sleeper IR only put 1 coach of 1AC class.
In your instance of raksha bandhan festival shows how IR is holding seats for so called VVIPs and actual passengers are in stress for booking seat or choose any other travel option.