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15% higher rail freight rates to jack up industrial costs
October, 14th 2011

Higher expenditure behind steep rise; industry to take Rs 6,000-7,000 crore hit.

At a time when the industry is suffering from high inflation, the railways have decided to go for a more than 15 per cent across-the-board rise in freight rates through the imposition of an extraneous hike in tariff. The move is meant to help the railways garner more revenue and is likely to translate into a Rs 6,000-7,000 crore burden on the industry.
A 10 per cent busy season charge on the base freight rate will be applicable from October 15. The railways will also impose a five per cent development surcharge from October 15 on the net tariff, comprised of the base freight rate and various demand management charges, under the dynamic pricing policy.

Unlike earlier, the busy season charge will be levied on all commodities except containerised cargo and certain automobile traffic. It is likely to continue till June 30, 2012.

All the commodities will be charged at the rate of 10 per cent, with 100 per cent exemption to container operators and automobile traffic moved in NJMG, BCACM and BCCNR wagons. Other charges like punitive charges for overloading, penal charges on mis-declaration and freight concession (discount/rebate) will also be granted on the net tariff rate.

The railways had in 2007 imposed a two per cent development surcharge to replace the safety surcharge levied earlier. That will now be levied at the rate of five per cent. Development surcharge will be calculated over and above the 10 per cent busy season charge that has become applicable on the base freight rates from this month.

Though the railways did not increase freight rates at the time of the Budget in February, it has adopted the surcharge route to generate more revenue. For instance, in April this year it imposed a surcharge of five per cent on the coal and coke group. On all the other commodities, a seven per cent busy season charge was imposed. Similarly, it had imposed a surcharge on iron ore last year. Not only is the surcharge this time one of the highest so far, but it is also uniformly imposed on all commodities.

Before the introduction of the dynamic pricing policy in 2006, the railways passenger fares and freight rates remained unchanged round the year and across all routes, even though tariffs for airlines and road sectors varied depending on the demand and the season. According to the dynamic pricing policy, the rates for non-peak season, non-premium services and empty flow directions are less than the general rates; the rates for peak season and premium services could be higher than normal.

For freight, the non-peak season is July 1 to September 30. For the passenger segment, this period is January 15 to April 15 and then July 15 to September 15 but the railways do not follow variable pricing for passengers.

An official on the condition of anonymity said generally an increase in freight rates was decided on need basis, depending on the amount of revenue required to be generated. The railways have not increased the base freight rate but only tinkered with the extraneous charges, said the official. Unlike the base fare, surcharges are imposed for a particular time period.

Officials defended the decision, saying the railways did not pass on the burden to customers despite an increase in input costs on account of fuel price hikes and higher wages.

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