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Freight Rate Hike By Railways

A circular issued by Indian Railways last week shows that the season levy is increased to 10% from 7% announced in March 2011. This levy is in addition to normal tariff and is applicable to most goods transported during October-March that is considered busy season for railways. In March 2011, railways had levied a busy season charge of 5% on coke and coke group and 7% on all other commodities. Containerised cargo and certain automobile traffic continue to be exempt from this levy. Railways has increased development surcharge on all goods tariff to 5% from 2%. Development surcharge is over and above base tariff, demand charges and 10% season levy.

Increase in tariffs is likely to inflate transportation costs of coal, cement, food grains and fertilisers, as they use railway as the main mode of transport.

Movement of goods via railways recorded a 6.1% year-on-year growth in April-August 2011.

Break-up of Revenue Earning Freight Traffic (million tonnes)
  Apr-Aug ’11 % YoY growth
Coal traffic 182.2 8.8
For steel plants 19.2 11.1
For thermal power 118.3 2.7
Pig iron & finished steel traffic 13.7 9.3
Iron ore (excluding for steel plants) 26.0 -13.3
Cement traffic 42.8 9.2
Food grains traffic 18.5 17.2
Fertiliser traffic 18.6 -1.3
POL traffic 17.3 1.9
Container Service 15.2 4.9
Other goods traffic 28.7 0.5
Goods traffic on railways 389.1 6.1
  • Movement of coal for steel plants rose 11.1% reflecting higher movement of imported coal. Coal meant for power plants (mainly domestically produced) registered a slow 2.7% growth in movement. 
  • A ban imposed on exports of iron ore led to a 13.3% fall in freight traffic movement in the current year.
  •  Movement of foodgrains registered a robust double-digit growth.

Railways registered a 10.4% growth in total earnings, both from goods and passengers, during April-September 2011. However, associated costs have risen at a faster pace. To add to that, railways provides subsidises to a number of industries, thereby increasing its costs. 

Performance of Indian Railways
  April-Sep 2011 April-Sep 2010 % growth y-o-y
units: Rs. crore
Total Earnings 48,947 44,338 10.4%
Total goods earnings 32,439 29,449 10.2%
Total passenger revenue earnings 14,018 12,689 10.5%
units: million numbers
Numbers of passengers booked 4,121 3,907 5.47%
Source: PIB

Hike in freight rates has come at a time when the country is already reeling under high inflation. However, the deteriorating financial condition of the Indian Railways may have pushed government to raise tariffs.

The increase in cost of transportation by road on account of higher diesel price could have prompted railways to increase tariffs. Hence, it is estimate that higher transportation cost, both by rail and road would exert inflationary pressures and may see more freight being transported by road.

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Categories: Cement, Coal, Fertiliser, Railways
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