New Delhi: Indian Railways, the nation’s biggest employer, left most freight rates unchanged for a third year to compete against a growing road network and to help keep pressure off inflation.
Continuing his populist tune, Railway Minister Lalu Prasad reduced by Re 1 fares of second class in non-suburban ordinary passenger and non-superfast mail and express trains. Further, he announced a 3% reduction in fares for AC first class in busy season and 6% in lean season.
Similarly, for AC two-tier, the busy season reduction stands at is 2% and the lean season at 4%. He also lowered fares for all classes of high capacity new design reserved coaches which would be 4% for AC three-tier and AC chair car in busy season and 8% in lean season. In sleeper class, the reduction would be 4% in all seasons.
Revenue will climb 11% to Rs7,12,000 crore ($16 billion) in the year starting April 1, Railways Minister Lalu Prasad forecast in the railroad budget in New Delhi on 27 February. The increase in traffic from the second-fastest expansion among major economies will ensure the network has enough to meet the Rs3 trillion investment needed for its modernization by 2012.
Prasad has kept freight rates unchanged since November 2004 to wean companies such as Bajaj Auto Ltd. from transporting goods on new highways and to improve the railroad’s market share. Keeping transport charges on hold will also aid efforts to slow the fastest inflation in two years.
“Railways has to hold rates to regain business from road operators,” said N. R. Bhanumurthy, an economist at the Institute of Economic Growth in New Delhi. “It will also help government efforts to rein in accelerating inflation.”
Freight rates for diesel and gasoline were cut by 5% and iron ore by 6%, Prasad said.
The railways plans to invest several billion rupees on containers, build new rail lines to planned large power projects, speed up building dedicated freight lines and expand routes to mineral rich areas, Prasad said.
Indian Railways is the nation’s main carrier of steel, aluminum, coal and other materials used by companies from cement maker Lafarge India Pvt. to electricity producer NTPC Ltd. It also moves rice, wheat and other farm products across the world’s seventh-biggest country by area.
With 11,000 trains a day, the network moves about 15 million people daily, the combined population of New Zealand, Hong Kong and Singapore. The network, which Prasad said carried 14% more passengers in the nine months of the year to March 31, will introduce air-conditioned coaches in Mumbai commuter trains and is studying the construction of high-speed passenger train lines.
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 any other products.
State-run Indian Railways has about 1.5 million people on its payroll. It has presented its own budget since 1925, after British colonial rulers separated its finances from the federal government’s accounts. It doesn’t publish earnings.
Prime Minister Manmohan Singh this month vowed to take a “multi-pronged strategy” to curb India’s inflation. The benchmark wholesale price index surged to 6.63% in the week ended February 10, a two-year high.
Singh is concerned rising prices will erode the spending power of the nation’s poor and threaten his Congress party’s popularity ahead of polls this year in the northern state of Uttar Pradesh.
The government on February 15 cut prices of petrol 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.
Road, Sea Competition
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 revenue. Holding freight rates makes rail transport more attractive for companies such as Bajaj, the world’s fourth-biggest motorcycle maker.
“We’re currently experimenting with using rail to move our three-wheelers to far-off destinations,” Sanjiv Bajaj, the Pune, India-based company’s chief financial officer said in an e-mail.
Other companies such as Hero Honda Motors Ltd., India’s biggest motorcycle maker, have also begun using the railways.
In the 13 years before 2004, when India Rail stopped raising freight rates, charges rose by an average 5 percent a year, according to R. Venkateshan, transport economist at National Council of Applied Economic Research in New Delhi.
“There won’t be any major change in freight rates in the near future,” National Council’s Venkateshan said. “Railways must offer more services like an increase in capacity or higher average speeds before it can raise freight rates further.”
India’s railway network expects to move 785 million tons next year, Prasad said.
Indian Railways, which expects freight revenue of Rs469.4 billion in the year starting April 1, began constructing 220 billion rupees 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 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.
India’s economy will probably grow 9.2% in the year ending March 31, 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 was the first in Asia to get a passenger railway when British rulers opened a 21-mile track from Mumbai to Thane on April 16, 1853. The network now covers 63,000 kilometers and is the world’s second largest under a single management, according to Indian Railways.