Indian Railways, the nation’s biggest employer, may leave freight rates unchanged for a third year to compete against a growing road network and to help keep pressure off inflation.
Revenue earned by Indian Railways rose 17 % in the first 10 months of the year as demand generated by the second- fastest expansion among major economies boosted traffic. The pace of growth will ensure Asia’s oldest network has enough to meet the Rs3 trillion of investment needed for its upkeep by 2012. Railways Minister Lalu Prasad will announce the budget at noon on 26 February in New Delhi.
Prasad has kept freight rates unchanged since November 2004 to wean companies such as cement maker Holcim Ltd. away from transporting goods on new highways and to improve the market share of railroads. Keeping transport charges on hold will also aid efforts to slow the fastest inflation in two years.
“A freight hike would further push up costs for everyone,” said Ravi Sud, the chief financial officer of Hero Honda Motors Ltd., India’s biggest motorcycle maker. “We need all the tools we can right now to fight inflation and the rail budget will contribute to that effort.”
Indian Railways is the nation’s main carrier of steel, aluminum, coal and other materials used by companies from carmaker General Motors Corp. to electricity producer NTPC Ltd. It also moves rice, wheat and other farm products across the world’s seventh-biggest country by area.
J. P. Batra, the top bureaucrat in the Ministry of Railways, said last month that holding freight rates has helped the railways increase market share in products such as cement. He declined to specify the percentage increase or to mention whether any other products.
“The policy to keep rail freight rates unchanged should continue to regain customers who have over the years switched to the roads option,” said D. H. Pai Panandiker, president, RPG Foundation, an economic policy group in New Delhi.
State-run Indian Railways has about 1.5 million people on its payroll. It has presented its own budget since 1925, when British colonial rulers separated its finances from the federal government’s accounts. It doesn’t publish earnings.
Prime Minister Manmohan Singh last week vowed to take a “multi-pronged strategy” to curb India’s inflation. The benchmark wholesale price index surged to 6.73 % in the week ended 3 February, the highest since 11December 2004.
Singh is concerned rising prices may erode his Congress party’s popularity ahead of polls this year in the northern state of Uttar Pradesh, which elects a seventh of all lawmakers in parliament. It will also set the tone for general elections in two years.
The government on 15 February cut prices of gasoline and diesel for the second time in 2 1/2 months to rein in inflation. India also banned overseas sales of wheat and pulses to build stockpiles and curb price increases.
Railways’ share of the country’s freight traffic halved to 30 % over the past five decades as the government spent $14 billion adding to the 3.3 million kilometers of highways, expressways and rural roads.
New pipelines by oil companies and the improvement in coastal shipping also contributed to the decline of railways, which depend on freight for three-fifths of its revenue.
In the 13 years before 2004, when India Rail stopped raising freight rates, charges rose by an average 5 % a year, according to R. Venkateshan, transport economist at National Council of Applied Economic Research in New Delhi.
Indian Railways, which expects revenue of Rs600 billion in the year to 31March, began constructing Rs220 billion of freight-only lines last year that will connect the financial hub of Mumbai on the west coast and Kolkata in the east to the capital New Delhi.
India’s economy will probably grow 9.2 % in the year ending 31March, the fastest pace on record. India has averaged 8.6 % growth in the past four years, the quickest expansion since the country’s independence in 1947.
India railways’ network moved 593.67 million tons in the 10 months ended 31January, almost 10 % more than a year earlier. The network was budgeted to carry 726 million tons of freight in the year ending 31 March.
“Prasad may cut passenger fares as railways is facing competition from low cost air carriers,” said RPG’s Panandiker.
Five new low-fare airlines including Deccan Aviation Ltd. and SpiceJet Ltd. have started in the past three years in India offering fares as low as Rs1(2 cents) to woo customers who have traditionally traveled by train.
India was the first in Asia to get a passenger railway when British rulers opened a 21-mile track from Mumbai to Thane on 16 April 1853. The network now covers 63,000 kilometers and is the world’s second largest under a single management, according to Indian Railways.
15 Million People
It runs 11,000 trains a day, moving about 15 million people, or almost the combined population of New Zealand, Hong Kong and Singapore.
India needs to spend money to upgrade the network as the key railway tracks connecting the nation’s biggest cities are “saturated in most sections,” according to a May 2002 report by the Indian Railways.
As many as 2,500 people have died in rail accidents between 1960 and 2004, and as many as 6,830 trains have derailed in that period, according to the railways.
“The railways should focus more on upgrading its network to compete with roads a lot better,” said Hero Honda’s Sud. “I am expecting a big thrust in the budget for infrastructure.”