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In Railway Budget 2015-16, it was announced freight rates would be raised by an average three per cent. This, the government hopes, will help it garner about Rs 4,000 crore in 2015-16. Experts, however, question the strategy, arguing the railways could lose more market share, given there is already heavy cross-subsidisation of low passenger fares with freight rates.
The Railways has revised its estimated freight earnings in 2014-15 to Rs 106,927 crore from Rs 105,770 crore (estimated in June 2014). In 2015-16, freight earnings are estimated to register a steep 13.5 per cent jump at Rs 1,21,423 crore.
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Dispelling confusion over the freight rate increase, Railway Board Chairman A K Mital told reporters the rise was the result of the ministry’s decision to restructure the existing classification of commodities. “After the restructuring of slabs, the freight rate is seen rising by up to 10 per cent in the case of a few commodities and even falling to negative numbers in other cases. Overall, we will get Rs 4,000 crore from the exercise out of the budgeted Rs 121,423 crore of freight earnings. Therefore, the average increase has been close to three per cent,” Mittal said in an interview.
In a separate statement, the ministry said the current system of freight slabs had led to disparities, whereby a slight change in the distance had a huge impact on the freight charged. “For distances of more than 1,500 km, the distance slab, earlier 250 km each, was reduced to 125 km each. This rationalisation has reduced the rates of many commodities.”
The ministry said the rationalization of freight rates hadbrought down rates for many commodities. Post today's changed freight structure, the cost of transporting coal from Korba to Gandhi Nagar wouldcome down by Rs 1.09 lakh a rake and the cost of transporting iron and steel from Bokaro to Amritsar would come down by Rs 4.65 lakh a rake.
Mittal said for the first time in its history, the 160-year-old Indian Railways was attempting an annual incremental growth in freight tonnage — by 85 million tonnes (mt), compared with 50 mt of additional freight growth every year in the past. Mittal clarified the freight rise wouldn’t impact the common man, as commodities for which the rates were increased, including food grain and fertiliser, were supplied at subsidised rates.
The railway ministry plans to spend Rs 8.5 lakh crore through the next five years. Of this, Rs 1 lakh crore will be spent in 2015-16. A bulk of this investment will be aimed at doubling and tripling existing tracks, along with gauge conversion to increase the railways’ loading capacity. “This decongestion will allow us to increase our annual freight tonnage from the existing 1.1 billion tonnes (bt) to 1.5 bt through five years,” Mital said.
On the freight increase, Sharat Misra, president of the Association of Container Train Operators, said increasing freight rates hurt the common man more than an increase in passenger fares, as costs for companies rose and these were passed to consumers. “Instead of increasing rates in every (railway) Budget, they should have a long-term policy on freight rates and passenger fares. Also, there should be an independent regulator to examine the efficacy of any increase,” he said.
L R Thapar, managing director of Rail Operations Hind Terminals, says the rates have been raised because the railways is running in losses. “People will suffer as the rates have been increased. Industry was not expecting this, but the railways must have had some compulsions. For some commodities, the rise will be passed on to customers easily. Companies that aren’t able to pass it on to consumers will look at other viable options such as roads,” he said.
Between April 2014 and January 2015, railways freight earnings increased 12.3 per cent, against the budgeted 11.7 per cent for the entire 2014-15. The higher earnings came amid a mere five-six per cent growth in tonnage and helped the railways offset a dismal performance in the passenger segment.
Freight earnings accounted for about 65 per cent of Indian Railways’ total earnings of Rs 144,167 crore in 2013-14 and 65 per cent of this financial year’s budgeted overall earnings of Rs 1,63,450 crore. The railway ministry had raised freight rates 5.8 per cent in April 2013, 1.7 per cent in October 2013 and 6.5 per cent in June 2014.
Since November 2014, a congestion surcharge of 10 per cent is being levied on all goods traffic, including containers originating at ports.