The proposed near 6% hike in freight rates for railways announced during the railway budget on Tuesday is likely to see a minor shift in freight from railways to trucks.
Freight rates for the latter have declined over the last year by almost 8%.
"No doubt the paradigm shift in freight tariff as from now on it will be fuel-linked freight charge revision, 5% increase in freight rates from April, 2013, will generate higher revenues to railways, but it also runs the risk of losing its already dwindling market share to roads & highways," said Dilip Oommen, CEO and MD, Essar Steel Limited.
At present, railways is the preferred mode of transportation for heavy and long haul freight while trucks compliment it by providing last mile connectivity.
In the last few years, however, freight on roads have eaten into railway's share due to better infrastructure and increased connectivity.
Trucks account for almost 80% of all freight movement in the country today while railways accounts for the rest.
"The hike in rail freight is justified but may give strength to truck freight charges which fell by 7-8% since April 2012, but have stabilised in the last 2 months," said SP Singh, senior fellow, Indian Foundation for Transport Research and Training.
The slowdown in the economy has already affected the financial health of railways. While the freight loading for 2012-13 is estimated at 1007 million tonnes, 4% more than last fiscal, it is lower than the earlier target of 1,025 million tonnes.
Its revenue target is also missed by 3.7%. For the next financial year, the freight loading target has been set for 1,047 million tonnes. a growth of another 4%.
"There has been a slower growth in freight loading than expected at the beginning of the year and accordingly Railways had no option but to scale down the budget target of 1025 MT to 1007 MT," Bansal said.