Spares passengers, hikes freight rates by 5.8% based on fuel price

With an eye on a string of elections leading to the main Lok Sabha polls next year, Railway Minister Pawan Bansal presented a politically pragmatic Budget, sparing almost 90 per cent of total train passengers from any significant indirect increases in rail travel charges.

There was also a dose of fiscal realism, with freight rates getting hiked via a fuel price-linked charge, and some quiet increases in other charges on passengers.

The hike proposed for passengers — through increases in reservation fee, and charges for superfast trains, Tatkal bookings and cancellation — will mostly be loaded on the reserved passengers.

The Railways will raise about Rs 881 crore through these proposed increases, of which almost half (Rs 400 crore) will be from the higher charges on Tatkal bookings, that is, those who book tickets on the last day. Its total passenger earnings are over Rs 42,000 crore. “Almost 90 per cent of passengers are insulated from any higher payouts, unless they cancel their tickets,” said the Railways Member Traffic K. K. Srivastav.

However, to protect the current financial status of the Railways, Bansal has proposed a 5.8 per cent hike in freight charges. Freight revenues contribute about two-thirds of total railway revenues.

The move could be inflationary considering that the Railways moves coal, cement, steel, foodgrains, fertilisers and petroleum products. But Railway Board Chairman Vinay Mittal said that impact of the hike will be by 4-8 paise a kg of these commodities.

The hikes will be effected through a fuel adjustment component (FAC) which will be revised twice a year, depending on how the diesel costs move.

Freight loading

Despite an economic slowdown in the current fiscal, due to which Bansal had to lower the freight loading target by 1.75 per cent, the Railways hopes to post almost 24 per cent growth in freight earnings. This is largely due to the freight rate hike effected in early 2012, when Trinamool Congress’ Dinesh Trivedi was Rail Minister.

Thanks largely by this freight hike, the Railways is set to close the current fiscal with over 20 per cent growth in total revenue.

Following this, it will be able to close the current fiscal with an operating ratio of 88.8 per cent, a significant improvement over last year’s 95 per cent. Operating ratio is the expenditure per rupee earned and thus a profitability parameter of the Railways.

Given that Bansal took over four months ago, his revenue mop-up measures through fare hikes will improve the Railways operating ratio to 87.8 per cent next fiscal (2013-14), despite the blow on account of diesel costs.

Loan pay-off

He has also proposed the creation of a debt service obligation fund, with an allocation of over Rs 4,163 crore, which will be used to pay off the loans from World Bank and Japanese funding agency JICA for the dedicated freight corridor project. “This fund will also help us in contingencies such as the implementation of a Seventh Pay Commission (which is due in 2015),” said Railways’ Financial Commissioner Vijaya Kanth.

Aimed at political constituents, Bansal has announced factories in several cities including Chandigarh, Sonepat, Kurnool, Bikaner, Pratapgarh, Rae Bareli and Bhilwara. The Railways will also add over 1.5 lakh jobs, largely against retirements.

(This article was published on February 26, 2013)
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