New Delhi: The Congress-led United Progressive Alliance (UPA) government is trying to fight inflation which is at a 13-month high but one of its key ministries, the ministry of railways, has announced a 5.6% increase in freight rates on iron ore cargo, a move that could result in an increase in steel prices.
The government, which has over the past few days announced several measures to fight an increase in prices, including import duty cuts on several products, has also, for the past several months, been nudging steel makers in the country not to increase prices.
The high rate of inflation— wholesale inflation was at 6.68% for the week ended 15 March—is especially of concern to the government because of coming elections in several important states. Several governments have, in the past, faced voter ire over rising prices. On Wednesday, the Election Commission announced that elections to the Karnataka assembly would be held in three phases on 10 May, 16 May and 22 May. The decision to increase rates will bolster the railways’ revenues, especially since iron ore freight accounts for a little under a fifth of its annual earnings. Significantly, the move, announced by the ministry headed by Lalu Prasad of the Rashtriya Janata Dal, a constituent of UPA, came just a day after finance minister P. Chidambaram urged steel makers to hold prices.
In a press briefing, the railway ministry said the steel industry would be able to absorb the increase in input costs for finished steel. However, Moosa Raza, president of the Indian Steel Alliance, said steel makers would be forced to pass it on to consumers. “On the one hand, the government wants us to bring down prices and on the other the railways increases freight rates.”
“This is yet another example of this government’s style of functioning where the left arm does not know what the right arm is doing,” said Rajiv Pratap Rudy, a national spokesperson of the Bharatiya Janata Party. Bidyut Chakrabarty, a political analyst and head of the political science department at the University of Delhi, said UPA’s attempts at containing inflation showed that it was beset by compulsions of coalition politics. He added that this explains why each ministry can get away with securing plum sops for its particular constituency, all of which strains fiscal prudence.
Congress spokesperson Manish Tiwari said the decision to hike frieght rates was an “economic” one. He alleged that steel prices are up because of cartelization between steel makers but added that “if freight rates” stand “in the way of a rollback in steel prices,” the government would review the hike in freight rates.