Railway minister Pawan Kumar Bansal proposed a fuel adjustment component (FAC) for cargo freight while presenting the budget for 2013-14. With the provision of revision every six months, the FAC will be dynamic in nature and change in either direction. It will be applicable in the coming fiscal.
With the FAC, the railways will be able to absorb R4,200 crore of the additional burden due to the revision in diesel prices. The railways fuel costs for the current fiscal are likely to inflate by more than R5,000 crore, thanks to a recent decision by the Union Cabinet to deregulate diesel price for bulk consumers.
The budget has also projected a 4% increase in freight traffic that could further increase freight revenue.
This being a sensitive year (general elections are due next year), there was no choice for the minister as revenues cannot be increased from land monetisation or public-private partnership route in the short term, said Ernst & Youngs Abhay Agarwal.
The move will increase input costs for power and steel and impact grain prices. It will push up the landed cost of fuel for power plants and necessitate electricity tariff hikes, said Ashok Khurana, director general, Association of Power Producers (APP).
However, it may not have much impact on grain prices, reckon industry players. Alok Sinha, a former chairman, Food Corporation of India, said: The increase in freight is likely to have a marginal impact on the transport cost of foodgrains. Railways carries a major chunk of grains to be distributed to poor families under the targeted public distribution system.
The railways has projected freight revenue of R93,554 crore, which is 8.8% higher than the budget estimate of the current year.
The railways had estimated freight revenue of R85,956 crore in the 2012-13 budget. But as per revised estimates, it could face a shortfall of 4%, R3,383 crore in the targeted revenue.
Bulk diesel sales are roughly 20% of the total market for the fuel. While the recent R10/litre hike in diesel prices has added to the railways fuel costs, power tariff hikes have also impacted it.