Rail Budget 2013: Freight hike heightens food inflation worries

by Sunainaa Chadha  Feb 26, 2013 17:12 IST

#Indian Railways   #RailBudget2013  

While Pawan Bansal spared the 'cattle class' of the Indian Railways by not hiking passenger fares further, he may have fuelled inflationary concerns by raising  rates in the form of a diesel adjustment charge on fuel. The budget proposal will mean that freight rates change each time diesel and power prices are revised.

“UPA government is sensitive to needs of people and fare hike was implemented which has brought in Rs 6,000 crore,” the minister said, adding that around 3,000 crore had been lost due to the hike in fuel prices.

The minister has announced that the fuel adjustment component will be dynamic in nature and will change twice a year in the direction of fuel prices.  Hence, given that the
Finance Ministry has made it clear that the price of diesel will be adjusted upwards on a regular basis, the impact would tend to be escalated over the year.

So far, there was speculation that Bansal would be forced to raise passenger fares as the benefits of the 21 percent hike in January was offset by the freeing up of diesel prices. However, it seems the onus has fallen on cargo rather than the aam admi as freight tariffs will rise by around 5 percent on an average due to dynamic fuel price adjustment.

"This would be inflationary as the cost of freight traffic would go up which will feed into the
prices of commodities. It will affect raw materials, finished goods and agricultural products in
particular. The last is serious because the food inflation rate is already high at 19% plus, and
such increase in transport costs will keep it at elevated levels," said CARE Ratings in a research report.

Secondly, a migration towards road too is unlikely as road freight charges would also go up when the price of diesel goes up. And when  transport costs go up, they feed into the prices of all commodities and hence the impact would be significant.

AFP

AFP

Railways had hiked the freight rate by about 20 percent on 6 March last year.

Meeting the freight traffic target of 1,047 million tonnes in 2013-14, will thus be difficult in an already slowing economy.

Passengers have been spared for now, but this could happen quietly in stages later, though Bansal did not specify when. The only hike in passenger fares relate to some supplementary charges for fast trains.

Meanwhile, the railways has managed to significantly improve its operating ratio to 88.8% in 2012-13 from 95% a year earlier. For the next fiscal, Bansal has targeted a further improvement to 87.5%.

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