Steamrolling Industries

Compared with a 10 per cent hike in 1996-97, freight rates have been raised by 12 per cent in this budget.

However, since the increase is not applicable to urea, its manufacturers will not be affected.

The hike should directly affect prospects of the cement and steel players as freight costs play a major role in determining profit margins. More than 45 per cent of the total cement production in the country is transported through the railways.

Of the total goods traffic, coal transportation accounts for 47 per cent, cements 8.8 per cent, steel 16 per cent and fertilisers 5.9 per cent.

Companies like ACC are likely to feel the heat. ACCs freight cost is 23 per cent higher than that of Gujarat Ambuja. During 1995-96, ACCs total freight cost stood at Rs 254 crore, a large portion of this was through the railways. The impact on Gujarat Ambuja will be relatively less as a major portion of its production is transported by sea.

However, there is some good news for the cement and steel sectors. This time, the ministry has proposed to procure 26,000 wagons. In the last two years, the wagon shortage has forced user industries to transport their output by road, which is costlier than the railways. Of the total commodity traffic, the share of the railways has dropped from 62 per cent in 1980-81 to 46 per cent 1991-92. This is currently estimated at 30 per cent.

In theory, additional wagons should ease the pressure on road transportation, which means a lower growth rate for the commercial vehicle segment. But the past track record of the government in achieving its target is not very commendable. As against the target of 19,000 wagons, actual procurement during 1995-96 stood at 17,000 wagons.