NEW DELHI: Get ready to pay more for train travel. The Narendra Modi government administered its first dose of harsh economic medicine on Friday in the form of a sharp increase in rail fares that could presage a budget that will eschew populism in favour of fiscal consolidation.
While the Opposition protested against such a move weeks before the government is expected to unveil its railway budget, the Modi administration defended itself, saying it was only implementing a decision that the previous UPA dispensation had cleared and then frozen.
The Congress party attacked the increase, accusing the government of adding to the burden on the common man in a month of coming to power. "This comes at a time the prices of onions and potatoes have skyrocketed. Also, there is concern about delay in the monsoon and the ongoing problem in Iraq is also having an effect on global crude prices," party spokesperson Ajay Maken told reporters.
"This hike will affect prices of food items, coal, and hence we strongly condemn it." Congress and other parties demanded an immediate rollback of the hike.
The decision to raise passenger fares by 14.2% and freight charges by 6.5% effective June 25 will help Indian Railways raise an additional Rs 8,000 crore in the financial year. Successive governments have been unwilling to risk unpopularity and raise passenger fares while treating the loss-making utility as a means of dolin .
To be sure, Modi has given ample notice of his government's intent to take tough and unpopular decisions to revive an economy that's grown at less than 5% in the past two years.
"I am well aware that my steps may dent the immense love that the country has given me," he said last weekend. "But when my countrymen realise that these steps will result in getting the financial health back, then I will regain that love."
The budget is expected to be announced in the first week of July. By tradition, the railway budget is announced two days before that.
The fare increase had been proposed by the previous government in the interim budget but was put on hold because of elections.
Justifying the decision, Railway Minister Sadananda Gowda said, "I was forced to implement the order that was done by my predecessor. I am only withdrawing the withholding order."
He said the interim budget presented by the previous government had assumed certain revenues on the basis of the proposed hike that was announced on May 16. That was the day the Lok Sabha election results were announced, giving the Modi-led BJP a clear majority and arming it with the numbers needed to take hard decisions. The hike was notified but put on hold immediately that day.
"Meeting the annual expenditure would not be possible unless the revised rates as finalised by previous government is implemented," said a railway ministry statement.
"Hence (the) order of withdrawing implementation of revised fare and freight has been withdrawn." Of the total increase, 4.2% and 1.6% is the fuel adjustment component respectively in passenger and freight charges that goes up or comes down in line with fuel prices. This has been added to the increase made by the previous government according to the laid-down practice.
With Indian Railways incurring a loss of aboutRs 900 crore per month in the passenger segment, economists hailed the move as a step in the right direction that won't do much to push up prices.
"The rail price hike is a very positive move. It clearly shows that the government is willing to bite the bullet on public finances," said DK Joshi, chief economist, CrisilBSE 0.05 %. "While it will help the financials of railways, the impact on inflation will only be mild."
ndustry welcomed the decision but said service quality also needed to be given attention.
"Railway freight rates have been increased with a view to resource mobilisation, which is today the most critical requirement for Indian Railways," said Chandrajit Banerjee, director-general, CII. "Without adequate resources, Indian Railways will not be able to afford its modernisation, capacity addition and safety plans." The increase in freight rates will impact a number of sectors, including power, coal, cement and steel but markets may cheer what they see as the government's intent to forge ahead with difficult policy changes aimed at shoring up the economy. The move will also inflate the fertiliser subsidy.
"The railway freight hike would be negative for sectors such as cement, coal and steel, but markets may show some resilience as this shows the government's intent to go ahead with hard reforms," said Kunj Bansal, executive director and CIO at CentrumBSE -1.93 % Wealth Management.
It is likely that the new government will make passenger fares and freight rates the responsibility of an independent Railway Tariff Authority after the budget, putting it outside government control.
(Source: http://economictimes.indiatimes.com/industry/transportation/railways/rail-passenger-fares-hiked-by-14-2-freight-rates-by-6-5/articleshow/36890075.cms)
