India to raise railway freight rates in blow to steel firms

NEW DELHI (Reuters) - India will raise railway freight rates on coal, iron ore and steel from April 1 to help fund an expansion of its well-worn network, a move that threatens to raise costs for local steel makers at a time when demand is weak and imports are surging.

The government plans to increase its annual freight carrying capacity to 1.5 billion tonnes from 1 billion tonnes, in part with the funds from the higher rates, railways minister Suresh Prabhu said in a speech presenting his ministry's budget for the fiscal year starting on April 1.

Prabhu did not say by when the expansion would be completed.

 

The rates for coal transport will rise by 6.3 percent, while those for iron ore and steel will increase 0.8 percent. Charges for the transport of urea and grains will also go up 10 percent.

But there will be no change in passenger fares.

Over the next five years, India will raise investment in its overloaded railway network to 8.5 trillion rupees ($137 billion), the government said on Thursday.

Steel companies said the new rates will increase their costs and squeeze already anaemic margins.

"We are helpless because customers may not be able to absorb the increase," said R.K. Goyal, managing director of Kalyani Steels Ltd . "Demand is very weak."

Companies like Kalyani Steels, JSW Steel and Jindal Steel and Power have been struggling with rising steel shipments from countries like China and Russia, forcing them to seek government help.

Finance Minister Arun Jaitley is expected to raise the import duties on steel to help local companies when he presents his budget on Saturday.

(Reporting by Manoj Kumar and Ratnajyoti Dutta; Writing by Krishna N. Das; Editing by Tom Hogue)