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Freight hike proposed in Railway Budget - Views on News from Equitymaster
 
 
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  • Feb 26, 2000

    Freight hike proposed in Railway Budget

    The railways have proposed a 5% hike in freight rates in their budget for FY01. However, freight rates of products including coal, steel, cement and diesel products are proposed to be hiked by only one to two percent. This is expected to limit the fall out on inflation.

    The proposed budget has failed to hike passenger fares. This has resulted in increased cross subsidisation of passenger fares from freight revenues. This increasing divergence will not augur well for the Railways as they are already losing market share to road transport.

    The decision to limit the hike in case of essential and core sector commodities is a step in the right direction, as it will limit the fall out on inflation. However, while the authorities seem to have adopted the route of cross subsidisation, the preferred route should be a rise in efficiency and productivity.

    The 5% freight hike for other commodities will however have an adverse affect on companies engaged in their manufacture. The worst affected sector will be cars and tractors (7%) and fertilisers (12 - 48%).

    The steel sector however has one more reason to rejoice (the other being negligible hike in freight rates). The railways have decided to step up spending on rolling stock. This will increase the demand for steel products.

    The railway budget sticks out like a sore thumb among various measures being initiated to reform the Indian economy. Instead of shunning subsidies, the railways have instead decided to delay this painful reform. However, it is only a matter of time before these bitter measures will have to be implemented.

     

     

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