Freight and fume

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: Indian industry’s most vivid memory of Lalu Yadav’s tenure as rail minister is his frequent mid-year tampering with freight rates after he had set them in his Budget.

So enduring is his legacy that even after his last Budget on February 13 this year, the Railway Board has issued 10 circulars revising its freight and haulage charges.

The genesis of this habit is one of Prasad’s ‘innovative’ management strategies—the dynamic pricing policy. As the name suggests, freight rate was meant to be linked to market forces and was expected to respond to price and supply of the concerned commodity in the market.

Prasad’s dynamic pricing policy seems perfectly reasonable and progressive—after all, ‘pursuing market responsive freight policies,’ as the Economic Survey for 2008-09 puts it—and sounds good on paper. But instead of making ‘freight structure simple and transparent,’ the policy made railways’ pricing arbitrary. In Prasad’s tenure, freight rates were often re-jigged to meet Budget targets and ensure that the carefully cultivated image of Indian Railways’ turnaround into a cash cow didn’t get tarnished.

The most affected commodities were bulk ones like iron ore, cement and coal. Take, for instance, last December: just a day after the Centre unveiled the first stimulus package, Prasad hiked freight for cement, coke and coal by as much as 7%. The re-jig was expected to help the railways rake in an additional Rs 600 crore to meet higher input costs, higher credit costs and the higher-than-expected liabilities on account of the Sixth Pay Commission.

In addition to this, additional levies such as a busy season surcharge and a congestion surcharge are also often levied mid year, over and above what is announced in the Rail Budget. Wharfage, demurrage and stabling charges are also often revised upwards after the Budget, and so are container handling charges.

Iron ore, steel and cement are largely dependent on railways for transport and form the mainstay of railway revenue. Stocks of companies dealing in these commodities often firm up after freight concessions announced in the Rail Budget, but mid-year revisions have upset many calculations.

Former rail ministers as well as Railway Board members concede that technically such revisions are supposed to be part of the Rail Budget and should not be announced mid year. A dynamic pricing policy is fine, but it should truly and transparently reflect market conditions.