No Passenger Fare Hike, But Here’s How Rail Budget Could Pinch You

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February 27, 2015

NEW DELHI – Railway Minister Suresh Prabhu did not hike passenger fares in his first Railway Budget, providing relief to millions of passengers, for whom railways continues to be the preferred mode of transport. However, freight charges were hiked for several commodities.

February 27, 2015

NEW DELHI – Railway Minister Suresh Prabhu did not hike passenger fares in his first Railway Budget, providing relief to millions of passengers, for whom railways continues to be the preferred mode of transport. However, freight charges were hiked for several commodities.

"Amongst commodities witnessing a significant freight revision are grains, pulses and urea with 10 per cent hikes and coal with a rate revision of 6.3 per cent. Increase in freight rates in the range of 2-10 per cent in commodities like cement, coal, iron or steel, bitumen, and urea is neutral to negative for the respective sectors," said Angel Broking.

The bulk of coal procured by power plants is transported via Indian Railways so a hike in freight charges raises the cost of producing electricity, said Nomura.

"If distribution companies do not have a fuel-adjustment cost reset built into tariffs, it would increase the pressure to hike retail tariffs," the brokerage added.

The increase in the freight rate on coal will also impact cement companies' power & fuel costs as their cost of transportation for coal will increase. Separately, the increase in freight rate for cement will directly impact companies' cement transportation costs.

A leading cement maker told PTI said the prices of cement bags may go up by Rs 5 to Rs 10 per bag following the hike in freight rate hike.

Passenger fares in India are cross subsidized by freight revenues that are high compared to other countries. The hike in freight rates could stoke inflation, pinching the middle class, analysts said

In a note, domestic brokerage Edelweiss said higher transportation costs of some of the key commodities will result in near-term inflationary pressures.

Quantifying the rise in inflation, Care Rating said, "The upward revision in freight rates across various commodities is likely to have inflationary impact of about 0.4-0.5 per cent in wholesale inflation."

A rise in inflation could halt the rate easing cycle, meaning consumers may have to settle for higher EMIs for extended period of time, analysts added.


Courtesy: NDTV