Continuing efforts to clean up railway finances, Railway Minister P K Bansal, the first Congress Minister to present a Railway Budget in 17 years, adopted the dynamic fuel adjustment component (FAC)-linked revision in tariffs, proposed by his Trinamool predecessor Dinesh Trivedi last year.
The 5.8 per cent increase will cover among other things foodgrains and pulses, coal, iron and steel, urea, iron ore, diesel, kerosene and LPG, which the industry and political parties feared could lead to further inflation spiral.
Beginning April 1, the FAC will be adjusted in freight rates twice a year in line with changes in diesel price. Any reduction in fuel prices could result in lowering of the freight rates.
"In the light of deregulation of high speed diesel (HSD), 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," Bansal said presenting the Budget in Lok Sabha.
While not hiking the basic passenger fares, which were raised only last month to rake in Rs 6,600 crore, the Budget made an upward revision of reservation fee and supplementary charge for superfast trains that will mean an increase ranging from Rs 5 on the second class to Rs 25 on AC 1st and Executive Class.
Tatkal charges will go up by Rs 15 on sleeper class to Rs 100 on Executive Class. Clerkage and cancellation charges will go up by Rs 5 on second class to Rs 50 on Executive Class.
The Budget proposes to withdraw the enhanced reservation fee and proposes no increase in parcel and luggage rates. The changes will come into effect from April 1.
Bansal said last month's decision to deregulate diesel prices has eaten away half of the Rs 6,600 crore gains to be netted by last month's passenger fare hike.
"As regards passenger fares, since these were revised only in January this year, I do not intend to pass on the additional burden to them now and the railways will absorb the impact of Rs 850 crore on this account," Bansal said in his Budget speech.
He told a post-Budget press conference that he was no apologetic about the hike in freight rates and passenger charges.
While Bansal said the average freight rate revision will be 5 per cent, Railway Board Chairman Vinay Mittal said it will be between 4.5 and 4.6 per cent. But the Budget documents show the increase to be an average of 5.8 per cent.
Mittal said the freight increase would neutralise the additional expenditure on account of fuel cost and is not going to result in additional earnings to the kitty.
Opposition parties attacked the Budget proposals as inflationary and a burden on the common man while Prime Minister Manmohan Singh and his Cabinet colleagues hailed it as reformist and forward looking.
India Inc was divided on the Budget with a section apprehending that the hike in freight charges will fuel inflation, while others said some proposals could set the growth multiplier in motion.