Railway minister Lalu Prasad on Monday announced freight cuts for a second straight year by moving some commodities into lower rate slabs in order to boost goods traffic. This is fourth Budget that the minister has presented.
On an average, a saving of 5-6% on freight rates will be achieved from a 10-point reduction in class.
The railways have eliminated the highest class—220—and moved the items, which include diesel and petrol, to a lower classification, class 210.
In last year’s budget, the railway ministry had reduced the highest class from class-240 to class-220.
Thus in less than two years, the highest class has been reduced from class-240 to class-210.
Also, the freight rates of mineral commodities like steel, cement and iron ore are expected to go down by 6%. This is because they are now classified in class-160 instead of class-170.
Cement companies will also benefit from discounts offered on transport of limestone. Limestone is a key raw material required for manufacturing of cement.
Reacting to the news of freight cuts, almost all cement stocks perked up by 1-4% in a market, which rose 0.12% on Monday.
Gujarat Ambuja was among the largest gainers rising 3.83% to Rs127.55.
Among other major cement stocks, ACC rose 3.3% to close at Rs945.90, Grasim rose by 3% to close at 2,341 and Ultratech rose by 1.05% to close at Rs906.65.
The cement industry has seen road freight rates jump 35-40% in the last 18 months, thanks to rising fuel prices and a Supreme Court ruling that banned the overloading of trucks.
Manufacturers currently incur almost Rs50 (25% of sale price) as transportation cost on every 50kg bag of cement priced at Rs200.
E.N. Murthy, secretary, cement manufacturing association (CMA), said, “The government had been asking if the volumes can be increased, we agreed to do so and would love to move more on rail.
“But there should be more rail routes connecting the limestone deposits and our factories.”
The railways already offer some discounts to attract more business from cement companies, which works to a 0.5-1% discount on movement of cement.
However, certain freight rates like bricks and stones, chemical manure (which includes fertilizers) and foodgrains like rice and wheat have been re-classified in higher class. In the case of bricks and stones, it is increased from class-130 to class-150.
The railways dominate the high-density cargo such as food grains, cement and timber, which contribute around four-fifth of the total cargo carried.
At the same time, the railways are now offering higher discounts on bagged wheat, fertilizers and cement loaded in open wagons.
Also, an additional discount of 30% is given for traffic moving in empty flow direction of wagons.
Pragya Singh contributed to this story.