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Modi rides UPA bullet train
Rail fares, freight to go up

New Delhi, June 20: The Narendra Modi government has started taking “tough” decisions by biting a bullet that was fired when the UPA was in power but kept in abeyance since then.

Today, the Centre announced an across-the-board increase in passenger fares and a hike in freight rates from June 25.

The railways issued a clarification tonight to underscore that the passenger fare increase was 10 per cent and the freight hike 5 per cent.

But the effective increase in passenger fare will work out to 14.62 per cent (10 per cent increase plus a 4.2 per cent fuel adjustment component). The effective freight hike will be a little over 6.5 per cent (5 per cent and the rest because of the fuel component).

Both fares and freight are re-calibrated twice a year, moving in either direction in tandem with fuel prices. Amid customary calls for rollback by the Opposition, the railways tonight said “the additional burden due to oil prices fluctuation will get reviewed if the price of oil decreases”.

The latest fare and freight hikes will yield additional revenue of Rs 8,000 crore for the cash-strapped Indian Railways.

The announcement comes a week after Prime Minister Narendra Modi asked the country to brace for “tough decisions” designed to improve the financial health of a stuttering economy.

The Modi government has, in effect, rubber-stamped its approval on a plan that had been conceived by the erstwhile UPA government. The Manmohan Singh government had announced the railway fare hike on May 16 — the day of the election results — and then quickly backed down with then railway minister Mallikarjun Kharge saying the decision ought to be taken by the new administration.

This is the third fare and freight increase in 18 months. The last fare hike was in October 2013.

Last year, the UPA government had announced plans to establish an independent rail tariff authority that would take decisions on fare and freight hikes based on purely economic considerations.

The UPA cabinet had cleared plans for the formation of the tariff authority in January this year but there has been little progress on this front since. It is not known whether the BJP and Modi are equally committed to the idea of an independent tariff regulator.

Fares were not raised for a decade between 2003 and January 2013, precipitating a financial mess in the railways where revenues have not kept pace with spending.

The fare hike comes about a fortnight before the Modi government presents its first railway budget and less than a month after it came to power.

Two years ago, when the UPA government had announced a freight hike before the budget, Modi had written to then Prime Minister Manmohan Singh protesting against the move.

Justifying the latest round of fare and freight hikes, railway minister D.V. Sadananda Gowda said: “The railways are incurring a loss of about Rs 900 crore per month in the passenger segment. It would not have been possible to meet the annual expenditure of the railways unless the rates were revised in accordance with the plan finalised by the previous government.”

Industry appeared to support the latest freight hike even though it would raise companies’ operating costs.

Ficci president Sidharth Birla said: “If the tariffs had been gradually increased over the years to match rising expenditure by the railways, an increase of such a magnitude would not have been necessary.”

Analysts said the 6.5 per cent freight hike would have an inflationary impact, nudging up prices of a range of goods from farm produce to minerals, steel and industrial products.

Nomura Securities said: “Wholesale inflation is likely to see a greater impact as the railway accounts for around 35 per cent of freight traffic in India. As such, the cost of transporting goods such as coal, cement, oil, steel and grain will rise. However, the hikes will improve the profitability of the railways and hence they are a move in the right direction.”

Soumya Kanti Ghosh, the chief economic adviser at the State Bank of India, said: “The fare hike will have an impact on inflation in the short term but this is welcome as it will reduce the cross subsidisation of passenger fares from freight. The increase in fares will augment the railways coffers and may be just the right medicine to jumpstart investment in infrastructure. The priority now should be to lay down a long term vision.”