The proposal to link freight rates to any changes in diesel prices from April is likely to lead to a 5-6% hike in freight rates. This will lead to an increase in the prices of commodities such as food grains, pulses, iron ore and cement, among many others, which are mainly transported by rail,
making life tougher for the common man and industry alike.
In January, diesel prices for railways were hiked and resulted in a Rs. 3,300-crore increase in its fuel bill. This hike is expected to be reflected in the higher freight charges in April though the precise extent has not yet been calculated. Freight rates are expected to be revised twice a year.
However, freight rates will decrease if diesel prices fall, but there is no likelihood of that happening in the near future.
"The increase in freight charges will definitely have an impact on inflation but it was unavoidable,” said DK Joshi, chief economist, Crisil.
"However, there will not be any drastic improvement in the financial health of the railways as that will require more elaborate measures."
"A 5% increase in freight charges will increase inflation by 0.7-0.8%," added Anubhuti Sahay, economist, Standard Chartered Bank. The government, however, defended the move, citing fiscal compulsions.
"In the light of the deregulation of high speed diesel, the railways' finances need to be rationally insulated, and to this end, a mechanism to neutralise the impact of fuel prices on operating expenses is required to be put in place," railway minister Pawan Kumar Bansal said in his budget speech.
The hike will add Rs. 4,200 crore to the railway's coffers.