Hmmm it seems the Railways feels that People now a days can afford Rs 1000 ticket while Rs 400 is too less. I recommend that this must not be done for long Distance trains where Fares will become Expensive.

I recommend increasing Sleeper class fares Rs 400 to atleast Rs 700 to recover the Actual cost. Recovering the Actual cost from Passengers is important, let the Subsides go to Some Hospital rather than Railways.
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The Actual poor are those who will travel unreserved if don't get a cheap reservation ticket, the rest all belong to Lower Middle class, who take AC ticket although their First Prefrence being a non AC one.

What if 3A and 3E coaches do not generate the required occupancy to recover the costs. Do you have the data on the operating costs of each class of travel. Or do you have the data on the passenger count for the trains before and after they have been stripped of their old SL/UR coaches.

Demand Supply balancing is how you make the product/service viable for both producer and the user.
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If People are not willing to patronize 3A (the only profit-making class as per you), so your solution is to herd them into UR coaches which again you've been steadily decreasing leading to an influx of unauthorized passengers into Sleeper compartments in the first place.

The insidious notion seems to be to cut down on the highly patronized assets of the Railways and overpopulate it with premium trains, which still wouldn't yield sufficient profit margins, the end result will be handing them over to private players.

Except in the previous scenario with SL and UR coaches, you can't easily push privatization or price gouging when the majority common passengers are travelling by Sleeper class, so you need to barricade them and keep them from accessing the railways first.