Rail Budget 2015: Freight rate hike may push up commodity prices

NEW DELHI: Prices of food grain, pulses, cement, coal and steel are likely to go up following the proposal to hike rail freight by up to 10 per cent for various commodities.

The Railway Budget proposals, presented by Union Minister Suresh Prabhu in Parliament today, proposed a hike in freight rates for 12 commodities in the range of 0.8 per cent to 10 per cent.

The increase in freight charges by 10 per cent on urea is also expected to add to the subsidy burden.

"With the increase in freight, the subsidy paid for movement of urea will increase by another Rs 300 crore from current level of Rs 3,000 crore," Fertiliser Association of India (FAI) DG Satish Chander said.

The proposed freight hike for cement, coal, iron and steel, grains & pulses, groundnut oil, LPG and kerosene is 2.7 per cent, 6.3 per cent, 0.8 per cent, 10 per cent, 2.1 per cent, 0.8 per cent and 0.8 per cent respectively.

"Our cost of production will go up in the range between Rs 2 and Rs 4 per bag of 50 kg cement," Dalmia Bharat Cement Group CEO Mohendra Singi said.

When asked whether the company would raise the prices, he said: "The price is a factor of demand and supply, so we will take a call on this later."

Further, a leading cement maker said the prices of cement bags may go up in the range of between Rs 5 and Rs 10 per bag following the hike in freight rate on coal, steel and cement.

Meanwhile, there was a mixed response from steel companies which said the proposed Rs 8.5 lakh crore investment in Railways in the next five years would spur demand for steel, but that they were a bit disappointed as the Minister did not lower freight rates despite lower diesel prices now.

"The freight hike in the Budget on iron and steel will have little impact on us," spokesperson of a leading steel firm said. Prabhu has also proposed to raise freight rates for iron ore meant for domestic use by 0.8 per cent.

On urea, Fertiliser Minister Ananth Kumar said despite the increase in freight rates, there will not be any increase in urea prices.

"We will continue to provide urea at the same rate of Rs 5,360 per tonne. It will only increase subsidy on urea".

The Railway Minister did not term the freight increase in some commodities as a hike, saying it is part of the ongoing re-classification of commodities that will reduce freight rates in certain sectors and may increase in others.

Minister of State for Railways, Manoj Sinha, said that there will not be any increase in urea prices for farmers.

However, for limestone, dolomite & manganese and speed diesel oil the rates have been reduced by 0.3 per cent and 1 per cent respectively.

The Railways Minister has also proposed to raise the base freight rates by up to 10 per cent.