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Let Indian Railways fix freight rates for cement on a commercial basis

SICMA has submitted a memorandum to Union finance minister Nirmala Sitharaman cautioning of cement shortages in northern, central and eastern parts of India.Premium
SICMA has submitted a memorandum to Union finance minister Nirmala Sitharaman cautioning of cement shortages in northern, central and eastern parts of India.

  • The best way forward is for the Indian Railways to be given the freedom to fix freight rates for moving cement, given the bulk nature of the commodity and its critical role in infrastructure development

The Indian cement industry has come up in such a way that while there is surplus capacity south of Vindhyas, production deficit persists in other parts of the country. The recently-formed South Indian Cement Manufacturers' Association (SICMA) has submitted a memorandum to Union finance minister Nirmala Sitharaman cautioning of shortages in northern, central and eastern parts of India. North India is often short of supplies. 

SICMA’s president is vice-chairman and managing director of The India Cements Ltd., N. Srinivasan. He met the finance minister in Chennai seeking quick remedial measures, including telescopic railway freight or some other method, to resolve the supply-demand mismatch across regions. According to SICMA, south India, with 180 million tonnes per annum (MPTA) capacity, accounts for almost 40% of India’s cement production. About 35-40% of limestone, a key ingredient for cement production, is found in southern India.

Since the cement industry is a significant job generator, the railways did provide an experimental tariff concession for movement of clinker, a key raw material for cement production, from the south last year, but it was discontinued because the condition of volumes required for sustaining the discount could not be met by suppliers.

Does SICMA seek to have the jaded freight equalisation policy resurrected? The policy—introduced in 1952, and in force until 1993, when, as finance minister, Manmohan Singh withdrew it—was aimed at facilitating equal growth of industries across the country. A factory could be set up anywhere in India and the transportation of minerals to it was subsidised by the central government. The freight equalisation concept made “essential" items available at the same price throughout the country. Among others, coal, steel and cement were included in this list of items. 

The freight equalisation policy hurt economic prospects of mineral-rich states such as Bihar (including present-day Jharkhand), West Bengal, Madhya Pradesh (including present-day Chhattisgarh) and Odisha, since incentives for private capital to establish production facilities in these areas weakened considerably. As a result of the policy, businesses preferred setting up industrial locations closer to the coastal trade hubs and markets in other parts of the country.

A return to subsidies and the discarded freight equalisation policy should be firmly resisted. The best way forward is for the Indian Railways to be given the commercial freedom to fix freight rates for moving cement, given the bulk nature of the commodity and its critical role in infrastructure development. Especially at a time, when large-scale capex investments are critical if the economy is to recover robustly from the shock of Covid. 

The Indian Railways should have this freedom for all commercial freight. Commercial clients should be able to negotiate and hire their transportation services by per square inch of carriage space the way commercial airlines use algorithms to decide airfares for sections of seats per flight. The railways must be driven by commercial consideration in renting out its goods wagons. If a long-term client can assure the railways of a steady income, it should have the option of negotiating a price and contract assured and reliable availability of its wagons over the period of time.

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