Economists Divided Over Impact

Economists are divided about the likely inflationary impact of the 12 per cent increase in railway freight rates on the economy.

A government official said the impact would only be one-time and would be largely determined by the ability of the Reserve Bank to curb unbridled money supply growth. There is uncertainty about inflation. But the freight hike would not unleash any cost-push pressures and break the camels back, he said, citing the oil price hike in July last year.

Since essential commodities are exempted, the 12 per cent freight hike will not have much of an inflationary impact. The hike is not too good for the railways itself, since it is already losing transport of bulk commodities to roads. However, this may be offset by a hike in diesel or petrol prices, said Pranab Sen, senior advisor to the Planning Commission.

Anushree Sinha, a senior economist in the NCAER was, however, more cautious. It is likely to have some impact on inflation, mainly on account of movement of manufactured goods, she said.

The data furnished in the Economic Survey indicate a trend towards only a moderate rise in prices during the current fiscal in some of the intermediate products like steel and cement which come under the purview of the freight rates hike.

At the end of January, while the overall inflation rate was at 7.6 per cent against 4.9 per cent in the same period in 1995-96, cement prices actually declined by 4.4 per cent, compared with an increase of 19.3 per cent in 1995-96.

In the case of basic metals, alloys and metal products, the price rise decelerated to 2.3 per cent as compared to 6.1 per cent in 1995-96.