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Signal to correct course Rethink hint after years of populism

New Delhi, Feb. 26: Railway minister Pawan Kumar Bansal today ducked another round of train fare hike but appeared to be putting in place a course correction after years of populism by announcing a fuel surcharge of 5.8 per cent on freight traffic to try to balance his books.

“As passenger fares were revised in January this year, I do not intend to pass on additional burden on them…,” Bansal announced in his maiden budget speech, the first to be made by a Congress minister for railways after a gap of 17 years.

Passenger fares were raised by 21 per cent last month. However, part of the expected extra earnings of about Rs 6,000 crore was wiped out by an increase in diesel prices.

By deciding not to raise passenger fares, the railways will have to absorb additional fuel costs of Rs 850 crore. The railways would, however, be tweaking supplementary charges such as reservation fees, cancellation charges and Tatkal reservation fees.

The upward revision of reservation fee and supplementary charge for superfast trains will mean an increase ranging from Rs 5 on the second class to Rs 25 on AC first and executive classes. The changes will come into effect from April 1. (See chart)

Bansal said the across-the-board hike in freight charges could net up to Rs 4,200 crore a year while raising passenger reservation and related charges could rake in another Rs 483 crore.

The freight rate increase or decrease from now onwards would be twice a year under a scheme called the Fuel Adjustment Component which “will be dynamic in nature based on changes in input fuel cost.”

An official said the delinking of passenger fare rise from freight rate increase was temporary as Bansal planned to take his case to set up a Rail Tariff Authority to independently set passenger fares and freight rates before cabinet within the next two months.

Passenger fare increases will be delinked from budgetary exercises. This could be held back this year, to forestall any negative fall-outs in the general election slated for early next year. The result of such populism will, however, be costly for the railways, which is set to lose Rs 24,000 crore in the current financial year.

The railways, which carry 23 million travellers everyday, is targeting a record Rs 1.46 lakh crore in revenues during the next fiscal even as it is likely to miss the total resource mobilisation of Rs 1.35 lakh crore set for 2012-13.

It is expected to fall short of targeted revenues by as much as Rs 7,491.66 crore mainly because of lower passenger and freight earnings.

Bansal reduced the number of wagons the railways traditionally buys every year, helping shave off a per cent from the sensex, which hit a three month low today close of trading at 19015 down 1.64 per cent.

Ficci secretary-general A. Didar Singh said: “…rail budget reflects the difficult economic scenario... (however) contains several proposals which, if implemented, would set a growth multiplier in motion.”

“Stocks fell after the budget, as no major announcements were made for big-ticket projects. It shows that the government is sticking to basics and does not want to announce populist measures which costs dear and put finances in troublesome position,” said D.K. Aggarwal, CMD of SMC Investments & Advisors.