Hike in freight rates may stoke inflation

The government on Friday announced a hike of 6.5 per cent in rail freight charges to apparently offset the increase in diesel price over a period of time. But the move is expected to stoke inflation as the freight tariff hike will feed into the prices of other commodities.

The freight hike, to be effective from June 25, is also expected to sharply increase the rates of food grain, fertiliser, iron and steel, ores, coal along with diesel, kerosene and cooking gas, which are transported through goods carriage trains.

The hike has come at a time when food inflation is quite close to a double-digit figure and an upward movement in the transport cost of farm commodities will keep food prices at an elevated level.

Announced shortly before the Railway Budget, the hike was severely criticised by Opposition parties, including the Congress, the Left, RJD and Janata Dal, who called it a cruel blow to commoners already reeling under price rise.  

The Opposition also slammed the government for not taking Parliament into confidence. Railway Minister Sadananda Gowda, however, said that he was merely implementing the order by the previous government. Incidentally, Prime Minister Narendra Modi as the then chief minister of Gujarat had expressed indignation to a similar move by the UPA government, just a week before the Railway Budget in 2012. The UPA had then increased freight charges by a whopping 20 per cent. In a letter to the then Prime Minister Manmohan Singh, Modi had said that the freight hike just before the Rail Budget “diminished the supremacy of Parliament” and he had demanded its immediate withdrawal.

“The Industry, currently reeling under a low growth scenario, can ill-afford the freight increase, especially on bulk heavy industries like steel, which contributes about 20 per cent of the freight revenue of the Indian Railways and are already under stress,” CII said.

“If tariffs had been incrementally attended to over the years, to match rising expenditure and attending to the needs of this crucial link in our national infrastructure, an increase of this magnitude in one go would not have been necessitated,” according to Ficci.

A coal transporter said increased freight rates will add to pressure on sectors such as power and steel that are used to fire plants.

The hike was announced nearly a week after Modi said the country should be ready for "tough decisions" required to improve financial health. The Railways is facing a severe financial crunch, with passenger subsidy touching Rs 26,000 crore and suffering a loss of Rs 900 crore per month.