Railways weighs freight rate cut as volumes slip

Written by Sunny Verma | Rajat Arora | New Delhi | Updated: Jan 16 2013, 06:09am hrs
Railway minister Pawan Kumar Bansal may have a surprise in store for the industries transporting goods by rail. In a move that would help reduce inflation and boost industrial competitiveness, the finance and rail ministries are discussing the option of cutting freight rates across commodities in the forthcoming rail budget. Sources said a freight cut would boost revenues for the national transporter, which has been steadily losing to road and air freight over the last few years and consequently missing freight revenue targets.

In fact, the idea was discussed even before last weeks passenger fare hike, targetting a 20% increase in revenue from this stream.

Cross-subsidising the passenger segment by freight had boosted freight rates beyond sustainable levels and it is reckoned that the passenger fare hike will give the railways leeway to cut freight and aim higher volumes.

Over 70% of the railways revenues come from freight but the segment has been witnessing very low growth rates in volume at 4.3% till now in the current fiscal. The railways is likely to miss its target of 1,025 million tonnes for 2012-13 by around 20 mt.

With revenues hit, the railway ministry is planning to revise its plan outlay downwards, which was set at R60,100 crore in the last Budget to Rs 51,000 crore.

Rail freight rates have been sharply hiked over the last few years the latest was a 20% hike in March 2012. A 22% increase in haulage charges the amount private container operators pay railways to use its infrastructure was announced last November.

Railway board chairman Vinay Mittal had recently attributed the cuts in Plan outlays over the last couple of years to missing freight targets.

The railways estimated to earn R89,339 crore from carrying goods in 2012-13, but till December 31, it could garner only R62,413 crore.

The Allahabad route would be closed for two months due to the ongoing Kumbh. It is unlikely that we would reach anywhere near targets from freight, a railway official said.

During July to September this year, Railways lost earnings potential of Rs 600 crore as several goods trains were idle. In September, 208 rakes were idle almost everyday, causing a loss of 4 mt of freight loading, the official said.

The recent passenger fare hike would earn railways somewhere between Rs 6,000 crore and Rs 7,000 crore extra in a full year. The proposed freight cut will reduce passenger to freight ratio further which at present is 0.26:1, way below 1.4:1 for Korea, 1.3:1 for France and 1.2:1 for China. Rail freight rates in India are already high in comparison to China and the US.