Railways increases freight rate to 7.7

Delivering a blow to the already depleted railway finances, Railway Minister Laloo Prasad Yadav has decided to increase freight rates of sev...

Delivering a blow to the already depleted railway finances, Railway Minister Laloo Prasad Yadav has decided to increase freight rates of several commodities, up to 7.7 per cent. The reason behind this move is the increased diesel and steel prices. The enhanced freight rates will be effective from November 27.

Passenger fares, however, have been left untouched. The populist move may go down well with the masses but certainly not with the finance managers of the railways. 8216;8216;Not only is the move inflationary, it will further affect the railway finances adversely,8217;8217; said an official.

Several experts including Rakesh Mohan and Mckinsey8217;s, who studied the railway finances, had strongly recommended ending cross-subsidisation of passenger fare by hiking freight rates. This, they said, was the main reason for the shabby state of railway finances. The cross-subsidisation costs railways nearly Rs 3,500 crore every year.

Sources, however, said with the Bihar elections round-the-corner Laloo could not afford to increase passenger fares. 8216;8216;There has been no hike in freight rates for the past three years since the railways had been absorbing the successive hike in diesel prices. But coupled with the increase in steel prices, it was difficult for them to absorb it,8217;8217; an official said.

Defending the hike, the railways spokesperson said freight rates for grains had remained unchanged and cement rates had been hiked only by 3.7 per cent. Other commodities for which freight rates had been raised, include coal, iron ore, limestone, dolomite, gypsum, bauxite, manganese ore, cement and clinker.

The railways was the country8217;s largest diesel buyer, consuming 205 crore litres a year. The increase in diesel prices 8212; about Rs 4.80 per litre since June 8212; would have cost railways an additional Rs 960 crore. The new freight rates will earn Rs 400 crore for the railways till the end of the financial year.

The official statement also said the impact of higher steel prices was significant for the railways, which is India8217;s biggest consumer of the metal, buying 1.4 million tonnes a year to make wagons and coaches.

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However, sources said hiking freight rates would ultimately be counter-productive. The railways had, anyway, been losing their profitable freight traffic to the road sector.

8216;8216;Railways used to carry 90 per cent of the freight traffic in 1950-51, which has successively been coming down. It came down to 70 per cent in 1970, 45 per cent in 1990, and now it is at an all time low of 30 per cent,8217;8217; the official said. The decline in freight traffic has a direct impact on railway finances. Railways earn 70 per cent of their money from carrying freight, and only the remaining 30 per cent comes from passenger fares.